It may be more the result of a mutually agreed-upon ceasefire rather than an actual treaty. But former
"The recruiting game is over," Gorman proclaimed in June at
"Recruiting is irrelevant now," he said.
Contrast that with the attitude at Morgan Stanley's rival
"We offer some of the
"I wouldn't say I've seen a slowdown or anything like that," Dolan said. "If anything, it's heated up for us a little bit with some of these successes we've had over the past two years."
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Flight to independence
Gorman's declaration that the recruiting game has ended not only seems contradicted by what some of his firm's rivals say, but it also flies in the face of one of the most common pieces of conventional wisdom about the wealth management industry: That advisors are fleeing long-entrenched wirehouses and other Wall Street players to
Indeed, recent studies confirm that the flow in the
But such figures obscure an important fact. Namely, wirehouses and their kindred institutions still hold the lead in managing U.S. wealth.
A separate report released by Cerulli in October found that
"I always tell people that the four wirehouse firms — Morgan, Merrill, UBS and Wells Fargo Advisors — those four firms control more assets than the 16,000 RIAs combined," Mike Rose, the director of wealth management at Cerulli Associates, said at the time.
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So the death of the big firm has been greatly exaggerated. But what about the end of the recruiting wars?
No end in sight
To Rick Rummage, an industry recruiter and the CEO of The Rummage Group, wirehouse skirmishes will always be raging for a simple reason. As has long been observed,
"They've been all fighting over the same talent since the beginning of time, and they'll be fighting after we're long gone," Rummage said. "The truth is, whether it's JPMorgan, whether it's RBC, whether it's Raymond James, whether it's LPL, they're all fighting over the same talent."
The Financial Industry Regulatory Authority, the broker-dealer industry's self-regulator,
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Retirement remains the biggest driving force.
"It's a $65 trillion market in U.S. wealth management that was $25 trillion 10 years ago," she said. "So there's actually not enough advisors in the industry to go around to grab that."
After laying dormant for a while,
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Those deals, on offer only to teams that generate $5 million a year or more, put Merrill into the same conversation as its rivals Morgan Stanley and Wells Fargo. Morgan and Wells have been known to offer even more, sometimes approaching 500% for especially productive teams.
How much higher?
To Phil Waxelbaum, an industry recruiter and the founder of Masada Consulting, things can't go on like this forever.
"These numbers are getting out of control," Waxelbaum said. "It's not to say we are going to see a collapse in deals. You are going to see deals become more thoughtful. Who they are given to is going to become more and more selective."
Rather than trying to stand out themselves with higher payouts, firms are likely to continue trying to differentiate themselves with the services they can offer clients ranging from average retail investors to the super rich. UBS, Waxelbaum said, has made it fairly clear its priority is to work with wealthy clients.
Some of its rivals like
Playing the cultural game
But still, by and large, their sights remain set on clients ranging from simply wealthy to the much-coveted ultrahigh net worth individuals — generally someone with $100 million or more to invest, Waxelbaum said. This they do both through explicitly stated goals and even more so through the types of services they have on offer.
"What firms are also doing is they're finally learning the cultural game," Waxelbaum said. "So if you go to the car dealership, and every car they have in inventory is a higher-end vehicle, then you start to define yourself to higher-end clients. But if you have everything from the lowest end Chevy right through to a Cadillac on the floor, then you're an every-man shop."
Indeed, the less wealthy tend to remain underserved.
Waxelbaum said the firms that are most eager to work with retail investors remain the smaller regional brokerages like Ameriprise, Stifel Financial, Raymond James and Robert W. Baird. They and the self-directed brokerage systems offered by companies like Charles Schwab, Fidelity Investments and the Vanguard Group are where most investors falling short of being wealthy are going.
"The greatest purveyor of public accounts is actually not firms that have direct advisors," Waxelbaum said. "You've really got Schwab, Fidelity and Vanguard, OK? It's not even a contest. If you put Schwab up against any other competitor in the small-account space, they crushed them."
For firms that are attached to banks, the story is a little different, Waxelbaum said. They often view their wealth management offerings as complements to their wide variety of banking services.
So Merrill, JPMorgan, Wells Fargo and Citi often have more of an incentive to work with retail investors because doing so helps them maintain banking relationships. Most of them have advisors stationed at branches specifically to help bank clients with planning needs.
"You can't abandon your bank client," Waxelbaum said. "So, you know, if I've got somebody who has $100,000 on deposit [certificates of deposit], and I don't have a lot of options for them, I might lose them along with the $100,000 CD."
The services on offer can run the gamut from 401(k) planning to mortgage lending to investments in alternative assets. Hans said at the BancAnalysts Association of Boston Conference in November that only 50% of Merrill's clients do their banking with Bank of America.
"So that's a big growth opportunity for us as well," she said. "That's a highly profitable business, and our clients appreciate their lives being made easier, as opposed to having multiple providers around them."
Training the Street
Beside recruiting, Merrill has 2,500 industry aspirants enrolled in a training program in the hopes of bringing in some new blood. Merrill used to enjoy the reputation of "training the Street," meaning Wall Street.
But there are some formidable obstacles to retrieving that crown, said Danny Sarch, the president of the recruiting company
Simple economics plays a part as well, he said. At most firms, advisors who want to earn $100,000 a year would need to be making about $300,000 for the company. With advisory fees often hovering around 1% of assets under management, that means they would need to be overseeing roughly $30 million for clients.
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"But how is a 30-year-old to attract $30 million in assets?" Sarch said. "It's next to impossible unless they join a team and get involved in the team. And then you're fraught with all kinds of challenges about whether they're skillful or not and whether the 60-year-old clients are going to come to trust the 30-year-old over time."
Having advisors join larger teams can also make it tougher for them to move on, said Michael Terrana, another industry recruiter and the founder of the Chicago-based Terrana Group. Terrana said each member of a team can plausibly claim to have a relationship with the group's clients, making it difficult for any one person to go independent and try to bring those investors along.
"It makes those assets stickier to the firm," Terrana said.
Sarch said many advisors on big teams started in the '80s, when high inflation meant investors were hungry for yields that would help them stay ahead of rising prices. Advisors at the time could just pick up the phone and pitch prospective clients on bonds or other investment vehicles.
"So Merrill Lynch guy would call prospects and sell them on a $50,000 municipal bond and establish a relationship and then follow with financial planning. And that's how they should start," Sarch said. "Obviously, when you say that out loud today, it's laughable. Who's going to send somebody $50,000 based on a phone call?"
Recruit or sink
With the obstacles to bringing in new blood still formidable, many firms' best option remains recruiting. Rummage said a firm's ability to recruit experienced teams usually comes down to how much it is willing to pay.
"When one firm has a better year than another firm, that's only because they're more focused and they're willing to spend more money," he said. "So when you hear that Morgan Stanley is up in head count by 200 and Merrill Lynch is down by 200, you know who spent more money to try to get up by 200."
Both Morgan Stanley and Wells recently discontinued their former practice of reporting how many advisors they have on the payroll. That makes it difficult to know, apart from trying to use anecdotal evidence
One imperfect proxy for gauging the results is to look at their assets under management. Morgan Stanley, far and away the leader by this measure, continues to barrel ahead with a plan to have $10 trillion in AUM by 2026. It was well on the way to that ambitious goal in the third quarter of 2023, reporting $6.2 trillion under management. That included $3.75 trillion being overseen by its advisors.
Wells, which recently
To be sure, the firms' aggressive recruitment practices come with a cost. Morgan Stanley
The way forward
Terrana said successful advisors tend to be an entrepreneurial bunch. For that reason, the option will continue to be attractive to many.
The big winners in the near term then are likely to be the registered investment advisors and independent broker dealers who can help advisors achieve the self-reliance that many crave, Terrana said. Above all, he said, independent firms will stand out in the recruiting game if they can offer to take care of regulatory and back-office service while leaving advisors to do what they like best — provide investment advice.
But that doesn't mean wirehouses have to take the departures sitting down. Terrana predicted many large firms will start to respond to competition from smaller rivals by taking on some traits of independent firms themselves.
Dolan of RBC Wealth Management said one of her firm's distinguishing traits is its small size. Running just shy of 2,200 advisors, RBC can still claim much of the nimbleness that comes from running a small firm while offering many of the services of a big bank.
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"We have the strength and stability of the Royal Bank of Canada behind us," Dolan said. "We have the technology and the platforms and the products and services of these large firms and wirehouses. So for someone coming from a wirehouse that is considering going independent, you've got RBC here that can offer kind of a middle ground."
Wells Fargo has already done this with its Wells Fargo Advisors Financial Network business,
"Wells has been at the forefront of that," Terrana said. "But I think, down the road, more of these firms may need to either have an IBD option or an RIA option to keep those assets in place."
