Given the voracious appetite of broker-dealers, there simply aren’t enough big-producing brokers available for recruitment, according to a new industry report.
Given the voracious appetite of broker-dealers, there simply aren’t enough big-producing brokers available for recruitment, according to a new industry report.
In the face of intense competition, broker-dealers need to develop new channels for recruiting and retention, according to the report, “The Race for Top Talent,” compiled by Moss Adams LLP of Seattle for Pershing LLC of Jersey City, N.J.
“It is no longer a challenge to recruit and retain investment professionals. It has become a flat-out race,” says the report, which will be released in the next few weeks.
“Demand is outpacing supply, and as the classic economic formula illustrates, the price of recruiting is increasing at an exponential rate. There simply are not enough investment professionals to meet the aggressive recruiting targets of the industry’s broker-dealers.”
According to the report, the brokerage industry has 250,000 “actively practicing” representatives and financial advisers, but no more than 30,000 of them generate more than $500,000 in revenue a year.
Meanwhile, nearly 80% of the reps and advisers generate less than $250,000 in annual production, according to the report.
High attrition rate
But the biggest share of firms’ recruiting efforts focuses on the top 10% to 20% of elite investment professionals.
And although broker-dealers routinely make recruiting their top annual priority and long-term strategic goal, a typical attrition rate for a firm is 10% to 15% of its reps, the report said. That means most broker-dealers “cannot generate a net gain of investment professionals and, therefore, are significantly stymied in their growth plans.”
Broker-dealers, however, have opportunities to develop new channels for recruiting and retaining registered reps, according to the report. Those include focusing on young and less experienced professionals, creating retirement options for brokers and advisers and assisting reps in getting equity from the sale of their practices.
The report is based on responses to a survey posted on an industry-publication website, as well as Moss Adams’ recent surveys of independent-contractor broker-dealers and advisers.
It reinforces the message that broker-dealers need to retain their top producers as well as develop emerging talent, particularly as recruiting becomes prohibitively expensive, said James T. Crowley, a managing director with Pershing.
“There’s a new deal coming out from the major wirehouse firms every morning,” he said. “Our independent broker-dealers don’t play in that space.”
And some broker-dealers have responded to the challenge.
In order to take on the competition, some growing middle-tier independent firms are offering souped-up compensation packages in place of or alongside big upfront checks (InvestmentNews, Aug. 13).
The industry faces a shortage of talent, according to the report. And the most intense competition isn’t for clients but for “talented” reps and advisers.
On average, broker-dealers lose 14% of their reps and advisers in any given year, according to the report. But last year, the assets of a typical independent broker-dealer grew by just 13.1%.
Broker-dealers may want to recalibrate their recruiting efforts away from the megaproducers, according to the report.
“With so much attention devoted toward investment professionals generating in excess of $400,000 in annual production, firms may be missing the opportunity to develop a resonant value proposition for the rest of the investment professional population,” the report says. “While large national firms and regional firms may be seeking that slice of the investment professional population, investment professionals generating between $250,000 and $400,000 represent a potentially lucrative segment of the industry and can fit in profitably to the independent firm or insurance firm system.”
And broker-dealers face a variety of challenges when trying to retain their reps and advisers, according to the report.
Barriers low
The barriers to brokers’ moving to new jobs have never been lower, in part because of the development of comparable technology platforms among firms.
Large upfront compensation packages from the wirehouses — totaling 150% to 200% of the previous year’s fees — certainly are enticements, especially as many reps and advisers don’t have strong relationships with “middle-tier management” such as wirehouse branch managers.
Reps and advisers leave their firms for a number of reasons, including dissatisfaction with either the system or business environment, a shift in the rep’s business model (such as pushing for accelerated growth) and dissatisfaction with the overall affiliation model or the broker-dealer model.
Universal issues such as mergers and acquisitions, changes in compensation, operational mistakes, compliance and turnover in management also may lead to departures.
