Monthly archive

June 2017

Recruiting: Repriced and Remodeled


The recruiting world changed forever on October 27, 2016. That’s when the Department of Labor sent shock waves through the industry with their infamous “guidance” memo railing against recruiting bonuses that they argued were a conflict of interest.

Morgan Stanley reacted with a swift cancellation of ALL start dates, effective immediately.

The big firms quickly seized the opportunity to “remodel” their deals (read: pay Less) and turn it back to a buyers’ market. Lucrative back-end bonuses that had offered as much as 150% of an FA’s annual production were significantly reduced, or in some cases eliminated entirely. As the firms struggled to interpret the edict from the DOL, most firms determined that, at a bare minimum, all retirement related assets and revenues could not be included in the back-end calculations. Morgan Stanley announced in early November that their new recruiting deals would be 150% upfront, plus ZERO back-end incentives.

As we came into 2017, Merrill and Morgan Stanley imposed a hard ceiling on their deals at 250% (plus unvested deferred comp). Still very attractive packages, but far off the pre-DOL packages that could exceed 350% if the recruit hit all the back-end hurdles. (Rare, but not unheard of).

As a further sign that the two biggest wirehouses were trying to put the breaks on what most senior executives consider to be unsustainable free agency, in May of this year they BOTH announced recruiting policies with fill or kill start dates.

The new fill-or-kill announcements sent veteran FAs running to their computers to print out their Focus Reports in order to secure offers before the paperwork deadline. Our phones were REALLY ringing off the hook. I have never seen so much confusion in my 27 years as a recruiter.

A sampling of the questions being thrown at me last month by managers and recruits and the press in the early days of the New World Order of recruiting:

“I have to get all my paperwork in by June 1st?” YES

“Is the On or Before 9/1 mandatory start date firm?” Also YES, I asked for a 9/8 and was denied.

“What about the 12/31 On or Before start date?” “What if I want to join in January?” “Am I a franchise player?”

Inside Merrill’s press release at the time was an announcement that their new strategy would be to get out of big recruiting deals and to instead go after LOS 3 to 8 and pay guaranteed salaries (plus grid) for 3 years.

That elicited its own series of questions and conclusions.

Managers were saying things like “I can’t guarantee the offer will be there in 2018” and “get me his paperwork right away so he can get on the list”. List? It’s like the big firms had set up velvet ropes and their managers were now burly bouncers deciding who would be allowed in the club.

You can’t blame the wirehouses for trying to put a halt to the frenzied free agency, but let’s be real: it won’t work.

There will always be at least one firm that HAS TO recruit, and another firm that WANTS TO recruit. The best way to predict what the future will bring is to look at what the past delivered. Go back to April 10th 1995 to the landmark Tully Report, a coordinated attempt to rein in recruiting deals at the time. A lot of people announced the death of recruiting. The problem? Prudential Bache chose to ignore the non-binding guidance. They were wallowing under the weight of scandal and ineptitude and HAD TO recruit, or die. They announced a deal called their “50-50-50” deal: fifty percent upfront plus 50% payout for 50 months. Game back ON! Merrill, and the other signatories to the Tully Commission’s report were left with no choice but to keep recruiting. It was not long thereafter that Pru Bache cracked the 100% upfront level and free agency hit a fever pitch.

I have no reason to think history won’t repeat itself here and now. Imagine an MLB team announcing they would no longer be going after big dollar free agents and would now strictly rely on their farm system to develop talent. That is a noble long term strategy, but what happens when your veteran Big Hitting All Star leaves for a $100million offer from your competitor, how do you replace that run production (aka revenue) from your farm system?

That story is playing out right before our eyes. Look at what is happening at UBS. In the last few weeks a $3billion UBS team joined Merrill and a $1billion UBS team started their own RIA with FallLine as their partner. Is UBS going to replace that lost revenue by calling up some rookies from their farm team? Obviously not.

My bet is that UBS will have no choice but to get back into big-team, big deal, recruiting.


And just like what happened after Pru bucked the Tully Report 20 years ago, other firms are not following the Big 4 wirehouses’ lead. Look at the success First Republic Bank has had in attracting big teams out of the wirehouses in New York and Los Angeles and San Francisco. Look at the shining light beaming down on quiet but powerful Royal Bank of Canada. Raymond James keeps outdoing themselves with big hire after big hire. And lo and behold, out of nowhere, Wells Fargo Advisors has burst back onto the scene with a newly remodeled and aggressive deal.

The bottom line: recruiting deals are down from their peaks, but they are not going away, and in some cases, they are going back UP. The deals from the big firms have been repriced and remodeled, but options for a proven big hitter are still very lucrative, as always.

And we haven’t even discussed the booming breakaway side of the business. Stay tuned.

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