Giant financial institutions and wirehouses that spent fortunes attracting and retaining top-producing brokers and wealth managers over the past few years may be about to get socked with a big wave of departures this year and, especially, in 2012.
That's the finding of a new study just completed by Aite Group, the independent financial industry research and advisory firm headquartered in Boston.
The new study, titled "Wealth Management on the Move: The Moment of Truth," based on interviews with 159 so-called "captive" financial advisers, attempts to establish these would-be wayward advisers' and brokers' "appetite" for leaving their current employer.
The findings, according to Aite Research Director Alois Pirker, "may come as a big surprise to some of those big banks that think their brokers are locked in."
He said the study suggests that many of the top producers at some of the country's biggest firms, notably Morgan Stanley Smith Barney and Bank of America Merrill Lynch, which invested heavily in both signing bonuses and in retention deals, will soon discover that time and changing economic circumstances will cost them many of their top performers.
Pirker explained that while there was a lot of "buying" of advisers and wealth managers in 2008 and 2009-through retention packages usually in the form of forgivable loans-as those three- and four-year retention periods expire, the ties that bind the advisers to the employer weaken. This situation is being further exacerbated by the high signing bonuses, sometimes as much as 300% of annual salaries, that some firms are offering to top performers.
"A lot of top brokers will look at the signing bonus being offered, and at how little is left on the retention contract, and they'll decide it looks like jumping ship is a good deal," Pirker said.
Also, the improved market makes it more likely that a large percentage of an adviser's clients will tag along with the breakaway adviser or broker, making it all the easier to decide to move.
"Since the people who are making these decisions are the top performers at a financial institution, often accounting for two-thirds of the business, if they do move, it will blow a huge hole in the income of the firms that lose them," he said.
Of course, one firm's loss is another's gain.
"There will be a lot of opportunity for some companies," Pirker said.
The most popular destination cited by those who said they were seriously considering leaving a wirehouse broker-dealer was another wirehouse (34%), followed by going independent (22%), or joining an insurance company broker/dealer firm (19%). For non-wirehouse broker-dealers who are thinking of leaving, the most popular destination is going independent (32%), followed by a private bank or family office (28%) or joining a wirehouse (20%).
The big year for jumping ship looks to be 2012, with the survey again showing some differences between broker-dealers at wirehouses and at other types of firms.
Among wirehouse broker-dealers who are planning to leave their employers, only 6% plan to make the move this year, and 38% next year followed by 16% in 2013.
Among the non-wirehouse advisers planning a move, 32% said it would be this year, 36% next year, and almost none in 2013. Pirker said the difference in departure timing is largely a factor of whether or not there is a retention contract.
Dave Lindorff writes for Financial Planning.