Competition for top teams in the wealth management industry was even fiercer in 2023, as 9,674 experienced advisors, an average of 806 per month, changed firms last year, according to the latest Advisor Transition Report from Diamond Consultants. That’s an increase of 7.5% from 2022.
Overall advisor movement was likely even greater than that since Diamond Consultants tracks movement among “experienced advisors,” those with three or more years in the industry.
The recruiting firm found that the big winners in the recruiting wars included Morgan Stanley in the wirehouse channel, with 445 advisors gained, Raymond James & Associates in the regional category, which picked up 159 advisors, and LPL Financial in the independent channel, which added 1,526 advisors.
“2023 was a year of contradictions in the wealth management industry,” the report stated. “Many advisors enjoyed record success, which might suggest they would be loath to upset the status quo, yet advisor movement was up in most industry channels. The firm paying the largest transition deal on the street, First Republic Wealth Management, fell victim to the regional banking crisis. Yet, deals remained elevated, with many firms continuing to color outside the lines for select teams (largely because heightened competition from all corners of the industry forced firms to do so to win the largest and most sophisticated teams).”
While deals were at record highs in 2023, average total transition packages were up only slightly, 15% to 20%, from 2022, the report stated. However firms are getting more creative and heavy-handed in their recruiting and retention efforts.
The independent broker/dealer channel saw the greatest increase in deal terms, Diamond Consultants found. Firms used to offer an average of 30% of trailing 12 months’ production; now, it’s closer to 50%, with several firms paying more than 100% of an advisor’s annual production in total transition packages. Some IBDs also now base their deals on an advisor’s assets rather than production.
“We predict that 2024 deals will stay at or near current levels. We may see another 10%–20% increase across the board simply due to the ongoing supply and demand imbalance for quality advisors,” the report stated. “The emergence of private equity-backed RIAs will keep all firms ‘on their toes’ as these deals will capture the attention of larger teams (they are typically structured at long-term capital gains and offer equity as a critical component). And with one-time recruiting powerhouse Merrill allegedly back in the recruiting wars after taking a 5+ year hiatus, we expect there to be upward pressure on wirehouse transition deals overall.”
The recruiting firm also predicts private equity to play a larger role in the wirehouse channel. In the past, if a wirehouse advisor wanted to monetize their practice, they first had to start their own RIA, then monetize via an equity sale. Going forward, private equity firms will likely bypass the first step by recruiting wirehouse teams to large national RIA firms they own or will build them with help from the advisor team.
“These deal structures are likely to include equity, which was viewed negatively for a time but now appears to be very much in vogue, and cash payouts with long-term capital gains tax treatment,” the report stated. “For the time being, these deals seem to be more of an interesting intellectual thought exercise than a viable option for top teams—but it’s only a matter of time before PE firms figure it out in earnest.”