As some of you know, I’ve been doing a lot of interviews lately to gather the best thinking on how to hire advisors into your firm-best practices for attracting and hiring talent.
The results have been very interesting, and will be reported in detail in another issue of Inside Information. But one thing I noticed about the discussions is that none of the firms I talked with are hiring ex-Wall Street brokers.
There’s a reason for this. One of the most consistent best practices that I heard was to hire for your values-on the theory that if the new hire doesn’t share the values of your firm, right off the bat, it’s going to be awfully hard to change them, and they may change the attitudes of others in the firm in negative ways. You can teach how to use software and estate planning techniques. It’s much harder to teach (or change) values.
But… I suspect that there’s a huge opportunity for advisory firms who are willing to roll up their sleeves and commit to retraining people whose values are different from theirs. I’ve recently predicted that the planning profession is about to experience a flood of “refugees” (as I call them) from the brokerage world, driven by four forces:
1) Some horrible new Wall Street scandal that we can’t predict, but seems inevitable given the greed-driven, predatory incentive structure at the brokerage firms.
2) Increasingly intrusive FINRA regulation; that is, new rules that are coming from an organization that wants the world to believe it is not managing a sales culture, when in fact it IS managing a sales culture.
3) The absurdly one-sided compensation split that the brokerage firms have hung onto far longer than they can justify: taking for themselves 60% of an advisor’s “fee-based” revenues when they could be earning a far greater percentage by working with an advisory firm.
4) This is perhaps the most powerful driver: the increasingly simple ACATs process, where, instead of going through reams of paperwork, today you can pick up prepopulated online forms, which already indicate where the client needs to sign, and the client can do an e-signature in the specified places. Moving a client over to your new custodial home can take 10 minutes instead of three weeks. No longer need brokers fear the transfer process.
Just because brokers are knocking on your door doesn’t mean you have to invite them in. Why would you want to? Because every broker who migrates to the fiduciary shores becomes the worst nightmare of the brokerage office down the street. These people know what goes on behind closed doors, they know the weak spots of the competition, and they know how to bring in business.
In addition, they will bring their clients with them, adding to the size of your firm. And if you bring in one or two initially, they can become the recruiting department that helps you bring in-and train-other brokers who are interested in leaving.
Why would you NOT want to? I’m told by advisors who have recruited former wirehouse reps that it takes a peculiarly long time for them to “get” the idea that they work for clients. The way it has been described to me is that their values are broken; that is, they have heard years of lip service about working with the client, accompanied by knowing winks and nods. They have seen their compensation incentives work at cross-purposes to actually delivering the best advice to their customers. They’ve struggled for acceptance in a good old boy’s network of older brokers who are masters of the predatory revenue and service model.
I suspect many readers are weighing the good with the bad, as outlined here, and finding the scales heavily weighted to the bad side. Why take on somebody else’s mess?
But I’m also told that many of these ex-brokers would like to be idealistic; they just don’t trust that there isn’t some hidden agenda that they aren’t being told about, hiding somewhere behind all your blather about fiduciary and client service and putting the interests of the client first. You have to build that trust, and people tell me the reprogramming can take a year or more, as they see that you’re actually walking the talk. Words are less effective than actions.
My prediction is that over the next ten years, a certain number of advisory firms are going to make a concerted effort to help ex-brokers escape not just brokerage firm employment, but also the brokerage firm mindset. As they get better at it (with the help of their initial recruits), they’ll get that conversion time down to six months or less. They’ll “rescue” hundreds, and then thousands of brokerage firm clients, and reclaim some of the brokerage firm talent.
In this new easy-ACATs environment, it’s going to be much harder for the wirehouses to hang onto their sales agents, many of whom have been given financial planning training and even the CFP designation in an attempt to disguise their real agenda behind some real-looking services and advice. This is an opportunity that the RIA community simply cannot pass up, even though most of you, at first glance , might not consider the opportunity.