Free Agency, that indefatigable force of Capitalism!


My friend Ed Pinckney played 12 seasons in the NBA and even though he was an occasional starter and made contributions that would easily garner a $6million annual pay package today he never made more than $2.2million.

That was the 80’s. Michael Jordan changed everything. And we all remember where we were when we heard about Texas offering Alex Rodriguez a $250million ten year contract.

Free Agency forever changed sports and the wealth management business was soon to mimic it.
Recruiting deals seemed to go up in 25% tranches. Legend has it that a Merrill hire actually broke the 400% barrier, long considered the equivalent of a 4 minute mile.

And then what happened?

Financial advisors became wealthy. It is common to see top FAs with $10million, $20million, sometimes $50million net worths. Imagine that.

It is also common to see top advisors keeping 60 cents on the dollar at the wirehouses.  Free Agency changed everything.   The 2008 housing crisis was merely a hiccup on the road to wild riches.

So, what does this all mean? As of May 2018, where are we in the cycle?

The Dow has quadrupled from its low a decade ago. That rising tide floated all boats. Free money pumped black ink through the wealth management firms’ annual reports.

The aspirational target margin of 20% has now become 25%.

But then Morgan Stanley and UBS unplugged the music and turned on the lights in the disco.  They announced Last Call  and attempted to drive a stake through the heart of Free Agency.  Merrill cooperated by announcing an initiative to only recruit small producers using small checks.

And just for added insult some Big Firms  filled their employment contracts with suicide notes, and sent out the message that they considered advisors’ clients to be OWNED by the firm.

You want to alienate a sales force? Do what UBS has done these last 6 months. It will be studied in B-schools for decades.

What happens next?

The winners will be two groups:
Non-wirehouse boutiques, and the handful of brilliantly designed indie firms like Dynasty and Cresset and Summit Trail and FallLine and Iconiq. Wealthy financial advisors who now have “forget you” money are going to drive the bus from here on out.

Deep pocket, resource rich, nimble, tech driven hybrid players will win championships like Michael Jordan did in the 1990’s. Big lumbering litigious firms will get picked on like herds of Wildebeests on their annual migrations.

Just look at relatively recent geopolitical events to see how this will play out.  How did that Berlin Wall work out for East Germany?