Financial Advisor recruiting has seen a boom over the last two years. Will the boom continue or has Financial Advisor (FA) recruiting stabilized?

In the 15 month period from August 2008 to Nov 2009 there were 11,875 wirehouse reps and 1687 regional firm reps who switched firms. Wirehouse reps are Financial Advisors from either Morgan Stanley Smith Barney, UBS, Merrill Lynch/BofA and Wachovia/Wells Fargo.

According to Discovery Database, over the past year over 22,000 reps have moved from one firm to another. Of the 24,441 reps that have changed firms, 40% were wirehouse reps. Furthermore, 52 percent of wirehouse reps stayed within the wirehouse channel, but switched firms.

There were several factors that accounted for the “perfect recruiting storm” of the last couple of years.

Many wirehouse FAs needed to switch firms because their retirement savings was in their deferred comp plans which FAs have seen the value evaporate and for some dissapear. The transition packages paid helped replenish what was lost for many FAs.

Record deals offered by wirehouses has kept the recruiting fire flamed and fueled. Transition packages are now in excess of 300% deals lasting about 9 years. For many Financial Advisors it has become difficult to financially advise themselves to pass up such large packages.

Mergers and Acquisitions has played a major role in FA recruiting in the last 18 months. Two of the largest wirehouses combined (Morgan Stanley and Smith Barney); Merrill Lynch was acquired by Bank of America and Wachovia was acquired by Wells Fargo. Whenever you have M&A events like this there is always attrition in the ranks.

This year will be different than the last 18 months. With the exception of something happening with UBS I don’t see any M&A activity that would significantly effect FA recruiting.

I don’t believe that retention packages being offered by wirehouses to top producers is much of a deterrent in keeping top FAs from taking a transition package if they are intent on moving.

There are many FAs who didn’t want to switch firms when their client’s portfolios were so far down. The rationale being that if an FA approached a client whose portfolio is down 30% about switching firms then the client may use the opportunity to bolt to somewhere and someone else. Now that many client portfolios have returned or stabilized FAs are feeling more comfortable about approaching their clients about moving firms.

The deals aren’t likely to be coming down in 2010 for top producers. The competition is as fierce as ever in recruiting FAs. I personally believe that 300%+ deals are here to stay.

Firms are more motivated than ever to recruit. An executive at one of the wirehouses told me last week that recruiting was more important than air. All complex managers bonuses and a large portion of their compensation comes from recruiting success.

Has Financial Advisor recruiting stabilized? Yes, compared to the last 2 years I believe it has. Is FA recruiting over now? Not hardly. As long as FAs have success and maintain being the gatekeeper of their client relationships competitors will seek to steal them away.

- Darin Manis