Displaying items by tag: recruiting

Becoming a Registered Investment Advisor (RIA) offers control, independence, and specialization opportunities regardless of client assets, but also entails assuming home office responsibilities. Competition can be tough however, with an average of 15.42 years in the industry, and must differentiate themselves, often requiring additional education like an MBA or by leaning on modern technology like AI. 

Leveraging technology is crucial for meeting evolving investor demands and streamlining operational tasks to focus more on client engagement. Research demonstrates that investors are overwhelmed with many financial products and face decision paralysis due to anxiety. 

RIAs can specialize in areas such as tax needs and goal-based financial planning, aligning with investor preferences. By adopting a flexible business model, RIAs can tailor services and remain competitive in the market. Automation of time-consuming tasks like trade execution and reporting can further enhance their ability to serve clients effectively.

Finsum: RIA’s need to lean into technology now more than ever to meet their clients’ needs and grow their business. 

When it comes to recruiting deals, there is much to analyze and understand beyond the upfront figure. In fact, how the deal is structured can be even more important in the long term, as this will dictate longer-term outcomes like growth, portability, succession planning, and compensation. 

Typically, the upfront payment is calculated based on 125 to 175% of trailing 12-month production. This portion is guaranteed and taxed at lower rates, so it’s understandable why so much attention is paid to this figure.

Many firms still offer back-end bonuses, which are generally around 25 to 50% of trailing 12-month production, although these are being phased out. These bonuses are only paid out if advisors successfully transition and achieve pre-defined metrics. Unvested deferred compensation replacement is another element becoming less common as this is increasingly folded into the overall package. However, this represents the amount that an advisor would lose out on by switching firms.

Finally, many deals will also include a ‘sunset program’ so that a retiring advisor can cash out of the business at market value. With this, there are many factors to consider, such as terms, requirements, and financing. For younger advisors, this might be less relevant, but it could be a deciding factor for those closer to the end of their careers. 

Finsum: There are many components of a recruiting deal that go beyond the headline amount. In fact, the structure of a deal can be more important when it comes to making the right choice.

Commonwealth Financial Network has forged a strategic alliance with Succession Link, a specialized fintech platform focusing on M&A and succession planning, to revolutionize practice management. Through the integration of Succession Link's bespoke solution, advisors can now seamlessly identify compatible continuity and succession partners. 

The imperative for advisor succession planning is underscored by Cerulli Associates, forecasting the retirement of 100,000 advisors overseeing $10 trillion in client assets within the next decade.

Commonwealth's consolidated platform not only streamlines access to practices for sale but also furnishes advisors with valuation tools, fostering succession planning activity. Succession Link's suite of features, including compatibility scoring and advanced messaging functionalities, aligns with the overarching goal of empowering financial professionals to navigate succession challenges adeptly.

Finsum: Technology tools will be changing the game in advisor recruiting as demographic shifts begin to hit the industry.

This time last year, UBS was embarking on its takeover of the distressed Credit Suisse. Understandably, this slowed its pursuit of other M&A targets. However, the bank is now ready to target larger wealth management firms.

UBS CEO Sergio P. Ermotti recently spoke at the Morgan Stanley European Financials conference. He sees the bank targeting US wealth managers for acquisitions in an effort to boost the profitability of this division. His goal is to narrow the gap between UBS and its rivals following a 72% decline in the unit’s Q4 earnings. 

However, many are skeptical about UBS’ strategy given the aggressive moves made by competitors in the last few years. According to Larry Roth, the managing partner at RLR Strategic Partner, “UBS could be late to the M&A party, which already has significant, well-run firms that are having success in this area.” Further, attractive targets are likely to have multiple bidders and rich valuations. 

Another concern is that there is no guarantee that these large acquisitions will work. A recent example is UBS’ attempted purchase of Wealthfront for $1.4 billion in January 2022 with the intention that it could help the bank recruit Wealthfront’s younger clients. The deal was scrapped by regulators and shareholders. 

Acquisitions are essential for UBS to fuel growth, given its challenges in retaining talent. UBS's advisors generate more than $1 million in average annual revenue and fees. This makes them an appealing target for RIAs or independent broker-dealers with more earnings potential. 

Finsum: UBS is betting on a more aggressive M&A strategy to bolster its US wealth management division. Yet, many believe that the bank’s efforts may not succeed given higher valuations for attractive targets and recruiting challenges.

Diamond Consultants recently completed the 2023 version of its Advisor Transition Report to identify the most important trends in financial advisor recruiting. Overall, recruiting was up 7.5% compared to 2022 which was unexpected given several headwinds. Many advisors who switched reported being more focused on the long-term to find the best place to maximize the value of their practice on a 5 to 20 year horizon.

Another interesting finding is that each channel seems to have a big winner. LPL enjoyed the most success from independent firms, while Morgan Stanley was the winner from traditional wirehouses. Boutique and regional firms like Rockefeller, RBC, or Raymond James also notched some major wins as they offer many of the resources of the large wirehouses without the bureaucracy. 

One catalyst for the increase in recruiting activity has been the expected involvement of private equity bidders. Yet, this hasn’t materialized in terms of PE-backed RIAs poaching talent from legacy players. One factor is that PE offers come with some caveats that make it less appealing to advisors. 

Finally, the lure of the independent channel seems to be fading despite the number of options increasing. This is likely due to traditional firms offering more generous compensation packages while the initial cohort of recruitees who wanted an independent channel have already moved firms. 

Finsum: Diamond Consultants put together its 2023 report on advisor transitions. Major takeaways are that recruiting remained strong despite some major headwinds and that PE buyers haven’t been successful in luring advisors.