Competition for top teams in the wealth management industry was even fiercer in 2023, as 9,674 experienced advisers, an average of 806 per month, switched firms last year, according to the latest. Advisor Transition Report by Diamond Consultants. This is an increase of 7.5% from 2022.
Overall advisor movement is likely even greater than that as Diamond Consultants tracks movement among “experienced advisors,” those with three or more years in the industry.
The recruiting firm found that big winners in the recruiting wars included Morgan Stanley in the wirehouse channel, which gained 445 advisers, Raymond James & Associates in the regional category, which gained 159 advisers, 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 said. “Many advisors had record success, which might suggest they would not want to disrupt the status quo, yet advisor movement was growing in most industry channels. The firm that paid for the biggest transition deal on the street, First Republic Wealth Management, fell victim to the regional banking crisis. However, deals remained elevated, with many firms continuing to color outside the lines for select teams (mainly because increased competition from all sides of the industry forced firms to do so in order to acquire the largest and most expensive teams sophisticated).
While deals were at record levels in 2023, average total transition packages rose only slightly, 15% to 20%, from 2022, the report said. However, firms are becoming more creative and aggressive in their recruitment and retention efforts.
The independent broker/dealer channel saw the largest growth in deal terms, Diamond Consultants found. The firms used offered an average of 30% of trailing 12-month production; now, it's closer to 50%, with some firms paying more than 100% of an advisor's annual output in total transition packages. Some IBDs also now base their deals on an adviser's assets rather than production.
“We anticipate that 2024 deals will remain at or near current levels. We could see another 10%–20% growth across the board simply because of the ongoing supply and demand imbalance for quality advisors,” the report said. “The emergence of private equity-backed RIAs will keep all firms 'on their toes' as these deals will attract the attention of larger teams (they are usually structured in long-term capital gains and provide capital as a critical component). And with the one-time recruiting center Merrill reportedly back in the recruiting wars after a 5+ year hiatus, we expect there to be increased pressure on wire transition deals in general.”
The recruiting firm also envisions private equity playing a bigger role in the networking channel. In the past, if an office advisor wanted to monetize their practice, they first had to start their RIA, then monetize through an equity sale. Going forward, private equity firms will likely skip the first step by recruiting call teams at large national RIA firms that they own or will build with the help of the advisor team.
“These deal structures are likely to include equity, which was viewed negatively for a while but now appears to be very much in vogue, and cash payments with long-term capital gains tax treatment,” the report said. “At the moment, these deals appear 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 take it seriously.”