Regional firms have been absolutely crushing it over the past 24 months.
Most prognosticators thought that the fiduciary rule and protocol exit disruptions would disproportionately positively affect independents and RIA aggregators. While those businesses have benefited, the boom has taken place in the halls of Stifel, Raymond James, RBC, Janney, and others.
To drill down a bit, three players have gathered assets like they’ve never done before: RBC, Stifel, and Raymond James.
Here are five reasons why it’s happening.
- Culture, culture, culture. Merrill Lynch was an advisor’s dream twenty years ago. Brand cache, a belief in the advisor as to the firm’s revenue center, stock stability and golden handcuffs, the ‘Thundering Herd’, and smart national marketing campaigns. Now, it’s an afterthought at Bank of America. Regional names now ‘feel’ like Merrill felt in the 90’s – entrepreneurial and collegial. Their opinions and client-focused businesses matter again. Culture.
- Recruiting deals at regionals are either equal to or larger than wirehouse deals. Just five years ago that simply wasn’t the case. Management at places like RBC saw an opening when UBS and Morgan Stanley decided to de-emphasize recruiting two years ago and reduce their recruiting deal numbers and stepped into the gap.
- Executive leadership. As wirehouses have seen significant churn amongst their leadership ranks, regionals have been ‘steady as she goes’. Furthermore, regional leadership has made smart moves and kept their powder dry with respect to the DOL fiduciary rules. They waited, wirehouses panicked.
- Demographics. As large scale, legacy teams are at the height of their earning power (and in the midst of a historic bull market), they are looking for a soft landing that won’t nip at their heels with new quotas connected to households, loans and checking accounts. Quotas that if not met take a chunk out of their grid payouts.
- Financial crisis residue remains. Wells Fargo is still fighting the stigma of a scandal that is two years old. Merrill is no longer Merrill. Nearly everyone took a big bailout. But regionals don’t even have a whiff of what remains of that stink. No bailouts, no ‘too big to fail’ documentary cameos. It is an easy sell to clients who previously may have questioned a move to a regional name. That question is gone, replaced by ‘could it happen again’ to legacy wirehouse firms.
Add it all up and you have legions of million-dollar producers taking VIP trips to RBC, Stifel, and Raymond James on the regular. And the pace doesn’t look like it’s about to slow. Every single quarter wirehouse headcount dwindles. No new narrative or bloated recruiting deal can compete with the reality of the above.
Regionals will continue to win.
If it seems like larger and more frequent recruiting headlines to keep hitting the tape, you are viewing the wealth management landscape correctly. Each and every week hundreds of millions, if not billions, in client assets are filling out asset transfer paperwork on Saturday and Sunday across the country. And there is no slow down in sight.
The wirehouses continue to be hit hardest as advisors are either opting for perceived greener pastures at a rival firm or setting up their own shop as masters of their inside an RIA aggregator of note. The mass exodus remains real and ongoinG, no matter what firm brass at places like UBS and BofA/Merrill Lynch would have you believe.
But we are more interested in why these moves are occurring now…and accelerating in the midst of COVID-19 and historic market volatility. We think the following four dynamics are fueling the recruiting market and have tipped the scales in the question.
- Practice valuations and client balances (AUM) are at historic highs.The thought process here is that with client balances at or near all-time highs, annual production levels are bloated in ways the industry has never seen before. T12 numbers and their multipliers are extremely ripe and perfectly situated to capitalize on the next dynamic in this list. Advisors would be well advised to take advantage of the gift that the markets have given them.
- Recruiting deals are at all-time highs and almost artificially outsized for big teams.The competition for teams of scale is as fierce as it has ever been, and deals reflect that competition. At both Wells Fargo and First Republic, when including deferred compensation balances and choosing to retire at those firms, the numbers can surpass 500%. Yes, you read that right. Deals are more apt to retreat from these levels than to press much higher – another reason why big teams are hitting the bid.
- Expired Deals.Every advisor and team that mattered during the financial crisis has had the deals they signed back in 2010 (either to stay at their firm or in a move to a new firm) expire. Everyone is a free agent and evaluating the best way to play out the rest of their career – both philosophically and by way of monetizing their book. Besides the two firms that exited protocol in UBS and Morgan Stanley, most advisors are completely legally detached from their current firm.
- The COVID-19 effect is real and a significant advantage for transitioning to a new firm.At the outset of the pandemic most thought that the chaos and market turbulence would stifle recruiting movement. Just the opposite has been true. Clients that have stayed home from work are more available to discuss moves and sign transition paperwork virtually; while advisors deal with fewer colleagues attempting to keep their clients at the firm they are leaving. In terms of the drama of the first weeks of a transition, COVID-19 has become an easy off-ramp for exiting advisors.
Doing a serious evaluation of the tent that you find yourself under as an advisor is an absolute must right now. With so many deals stretching beyond 300% and production and asset levels at historic highs, big teams will continue to leave. Considering the factors above and the cover for a transition, you should be doing your own evaluation right now.
After the departure of their national recruiting head, John Pierce, Stifel recruiting took a bit of a pause. As they circled the wagons they remained engaged with advisors that had been in the pipeline before Mr. Pierce’s departure and the fruits of those efforts have finally found their way to the firm. Via On Wall Street
“The largest of Stifel’s latest recruits is an ex-Merrill Lynch team that managed $935 million. It is composed of advisors Blase Sparma, Stephen Long Jr., Brad Ripplemeyer, and Hampton Ballard. They made the move last week and will staff a new Stifel office in Venice, Florida.”
“Sparma and Long had been at Merrill Lynch since starting their careers in 2000 and 2004, respectively, according to FINRA BrokerCheck records. Ripplemeyer began his advisory career at Smith Barney in 2000, moving to Merrill in 2012. Ballard has spent the entirety of his four-year career at Merrill.”
All in all, Stifel brought in $1.5B in client assets via their recruiting haul, adding several other advisors and teams to go along with the flagship group from Merrill Lynch.
Over the past four years, Stifel has feasted on Merrill Lynch’s legacy teams and advisors. This group adds to that batch of former Merrill Lynch faculty that now call Stifel home.
Beyond Merrill Lynch, Stifel also landed a sizable grouping of Wells Fargo talent across the country. Interestingly enough Wells Fargo has a sizable presence in St. Louis alongside Stifel – so a bit of hand to hand combat on the recruiting front.
Whether or not Stifel can keep up the pace that is set in 2018 and 2019 is yet to be seen, but $1.5B in recruited assets is a great start.