Many wealth management firms claim to prioritize aggressive advisor recruitment. But which ones actually put serious money behind it?
Although an imperfect gauge,
Viewed through that lens, no firm has devoted more resources to recruiting in recent times than LPL Financial. Its outstanding balance of repayable loans stood at $2.3 billion at the end of 2024, $1.9 billion of which was tied directly to recruiting.
From 2018 to 2024, the tally for those recruiting loans — money offered to advisors to entice them to switch firms — ballooned by more than 720%. And LPL has shown few signs of slowing down, even as other firms have turned to pursuing growth through other means. Over the course of just one year, LPL's recruiting loan balance surged by nearly 70% from 2023 to 2024.
Firms often see a connection between these heavy outlays and their financial performance. A spokesperson for LPL said the firm's net new assets have had an "organic growth" rate of 14% over the past year. (Organic growth refers to assets brought in from advisor recruiting, as well as from new and existing clients.)
"This growth is driven by the appeal and flexibility of our model; our ability to develop beneficial long-term relationships with advisors centered on personalized, holistic support; and the strength of our balance sheet," the spokesperson said.
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Recruiting loans are usually calculated as a multiple of an advisor's annual revenue generation. Advisors who accept the money don't have to pay it back if they stay at their new firm for a set number of years, often anywhere from seven to 12.
Other firms and their loan balances
As LPL's recruiting loan balances skyrocketed in recent years, other wealth managers' tallies grew at a slower pace or even declined. UBS', for instance, dropped 27% from 2018 to 2024 to just under $1.7 billion. Wells Fargo's declined by 5% to $2.23 billion in the same period.
Meanwhile, LPL's independent broker-dealer rivals have been adding to their loan balances, albeit at a slower pace.
Most of the firms cited in this article declined to comment or did not respond to requests for comment.
What recruiting loans reveal about growth philosophies
LPL announced plans in 2024 to buy Atria Wealth Solutions, a firms with 2,400 financial advisors with $100 billion in client assets. Its other purchases of recent years include
LPL's big acquisitions, along with its standard recruiting, have sent its advisor headcount skyward. The firm last reported having nearly 30,000 advisors, up from roughly
In the wealth management industry, M&A deals are often deemed a form of "inorganic growth" and contrasted with growth through
"What we're really seeing as we look at these numbers is: What's the growth philosophy of these firms?" he said. "And what's their thought process on inorganic growth?"
Recruiting vs. mining AUM from existing clients
Compare LPL with a firm like UBS, Waxelbaum said. In its North America operations, UBS has stepped back from recruiting while looking for ways to generate better returns from its existing business.
Morgan Stanley executives are putting as much emphasis on mining AUM from existing clients as on recruiting it from outside. CEO Ted Pick has said he thinks the firm could add
Waxelbaum said one question firms have to ask about any potential recruiting deal is whether the money they are about to hand out as a loan might be better used elsewhere.
"If the dollar wasn't spent on recruiting, what would it be spent on?" Waxelbaum said. "What was the opportunity cost? So if they deploy that in another phase of their business, could it have been more accretive? That's the decision everybody makes."
How recruiting deals can fail
Recruiting loans may be a costly means of building a wealth management business. Yet if firms are being selective and only using loans to bring in strong revenue generators, then the recruiting deals should be break-even propositions for firms' balance sheets within four years.
Ron Edde, also an industry recruiter and the president and the CEO of
"Less common is for a bigger advisor to come over and for some reason isn't able to bring the bulk of his book with him," Edde said. "Those clients weren't as sticky as you thought. Maybe the new firm is not something the clients were impressed with and won't follow."
Recruits can also leave their new firm earlier than they agreed to when they accepted a loan. When that happens, the result
No limit to recruiting loan balances?
Danny Sarch, the president of the recruiting firm
Decades ago, when recruiting loans first became common in the industry, advisors often had to agree to stay put for only three or four years before the loan was forgiven. But with new recruits now sometimes receiving as much as 400% of their previous year's revenue generation for switching firms, the required lengths of stay have stretched to 10 years or more.
That increased obligation makes a move from one institution to another all the more risky. Sarch said he generally recommends advisors hold on to money they've received from a recruiting deal, at least until they feel fairly comfortable they're happy at their new firm.
"If they are not spending it, then they are recognizing that something can change," he said. "If that's the only thing that's keeping them here, then if they can pay it back, they can leave."
Jason Diamond, the president of the recruiting firm
"Firms need to ask themselves if every recruitment deal makes sound economic sense," Diamond said. "Don't over pay for a nonquality book, especially if you have reason to believe the assets aren't going to be portable."
Looking to 'same-store' sales, cost reductions
Sarch agreed that a less costly way to build a wealth management business is through "same-store sales" — or bringing in assets from existing clients. But recruiting is often a much-faster route to the same goal.
Even current clients who are happy with their advisors can't necessarily be counted on to contribute assets.
"If your client Mrs. Jones suddenly wants to build her $5 million to $10 million dream house, then the assets go down," Sarch said.
Industry consultant
"In the short run, that will boost your profits because you are not paying to grow," he said. "But it could slow down your growth rate in the long run. So it's a strategic decision."
Recruiting has likely lost some of its appeal to firms seeking to boost their bottom lines by reducing expenses. Morgan Stanley and UBS, for instance, have made controlling costs a central plank in their plans for their wealth management divisions.
Morgan Stanley has set itself a goal of achieving a 30% operating margin, meaning just under a third of its revenue would be left over once expenses have been subtracted; its cost-to-revenue ratio was
Even firms that have slowed recruiting efforts have seen client assets increase in recent years. But that has had a lot to do with much of those assets being invested in stocks during the bull run of the past two years, Tasnady said.
Lessons to be learned from LPL
Meanwhile, Tasnady said, LPL has shown how effective recruiting can be in building out a wealth management business. LPL is one of the few industry firms that reports every year how much in client assets it has brought in through advisor recruitment.
And those recruited assets have made up a large percentage of LPL's annual net new assets — or assets brought not only through recruitment but also from existing clients or referrals of new clients, minus any assets that left. Of the nearly $236 billion in net new assets LPL reported in 2024, for instance, 63% were recruited assets. The percentage was even bigger the year before, when the firm's recruited assets made up 77% of its roughly $104 billion in net new assets.
"A lot of the big firms don't really grow that fast by just having existing advisors trying to get new accounts," Tasnady said. "For one, the advisors themselves, unless they are very young, have pretty full client loads."
Fewer and fewer M&A opportunities for IBDs
With LPL having agreed earlier this year to buy its former industry rival Commonwealth Financial Network
But there is
Waxelbaum said it's not only LPL that has been building its business through big M&A deals in recent years but also many of its independent broker-dealer rivals like Cetera and Osaic. The story of industry growth in many ways has been "IBDs versus the world," Waxelbaum said.
But with the buying spree of recent years, supplies have run thin of high-quality firms like Commonwealth or Avantax, a tax specialist
Even firms like LPL that have grown swiftly through acquisitions are likely to find they have to build their businesses in other ways. One result of the change will be smaller annual increases in their recruiting loan balances.
"There are still some high-quality populations, but if I find a great IBD that has 200 advisors, who does that move the needle for anymore?" Waxelbaum said. "Yeah, there will be a fight between Osaic and Cetera and LPL, for sure. But does it move the needle? The really great M&A stuff is gone."
