While limited industry data has made it clear that the pace of wirehouse recruiting, and the size of typical deals, has increased in recent years, there has been remarkably little information about the terms and details of the ‘typical’ deal. For the most part, this is because broker-dealers have not been very public about the deals that they’re offering, likely because too much knowledge limits their ability to negotiate on an advisor-specific basis for a more favorable deal. At the same time, brokers themselves are usually not very open about the deals they complete. In part, this is because many broker-dealers require them to sign non-disclosure deals to keep the terms secret, but in some cases the reality is simply that the broker doesn’t want other advisors or his/her clients to know what was paid to entice a change in firms (an area that FINRA is now scrutinizing).
The end result of this environment is a highly inefficient marketplace for advisors looking to transition from one wirehouse to another. Notwithstanding all this confusion, a new firm is looking to bring an end to the opacity of brokerage firm recruiting deals. Called “AdvisorHUB”, for $9.99 advisors will be able to download a current report detailing the recruiting deal terms of dozens of broker-dealers, private banks, and wirehouses in today’s marketplace via an Apple or Android app, based on the intelligence that the AdvisorHUB team is able to gather from its available connections and networks.
And an early glimpse at the data reveals a startling reality – it turns out that in a world where the ‘typical’ RIA deal is approximately 2X revenue, the typical wirehouse recruiting package is as much as 350% (3.5X) trailing revenue. In turn, this suggests that the reality the breakaway broker trend has been more of a trickle than a flood may have less to do with the captive confines of the broker-dealer world, and more to do with the simple reality that notwithstanding the lack of “equity”, a broker can actually monetize their practice for as much or more than many RIAs. On the other hand, the reality is that the amounts that wirehouses are paying may well be unsustainable, especially if AdvisorHUB brings so much transparency to deal terms that every broker demands such treatment. Nonetheless, it seems that for the time being, having built a practice in a wirehouse – and staying there – may have been far more lucrative than the independent community ever realized, and that the decision to breakaway is far more nuanced than just the concept of “having equity [to someday sell] in the advisory practice.”