In nearly 30 years of counseling advisors, we’ve seen and heard it all—especially when it comes to the sensitive issue of transitions.
Some common beliefs around transitions are true—like the idea that a transition is a hassle and a lot of work. Others are simply outdated, such as the notion that advisor resignations should occur on a Friday to maximize client retention.
This is Diamond Consultants’ annual endeavor to set the record straight. When an advisor evaluates the all-important stay versus go decision, much is at stake. It’s critical to be armed with accurate and timely information.
Here are the most common “myths” that can prevent an advisor from fully optimizing their business:
1. Transition deals will just keep going up.
For a long time, this adage was true. Each year, transition deals seemingly hit a new high-water mark and showed no signs of reversing course. But the end of 2024 was a stark reminder that the 2010s and early 2020s were a historical anomaly in terms of interest rates and market calm. Suddenly, we find the industry facing: 1) a declining interest rate environment, 2) a continued period of geopolitical uncertainty and 3) scrutiny of firm “cash sweep” policies, which threatens to upend firm profit margins. Logically, as a result, we do not expect deals to move higher in 2025. In fact, many firms have already signaled that deals will likely remain in line or even pull back due to market dynamics. One factor working in favor of higher deals: For the first time in recent memory, all four wirehouses are back in the competitive recruiting battle.
2. Competitive recruiting is coming to an end at the big firms.
Morgan Stanley made headlines recently for declaring that competitive recruiting will not be a key part of their strategy going forward, instead relying on organic growth efforts. We’ve seen this story many times before: A firm, usually one of the wirehouses, loathes the idea of continuing to pay 300%+ of trailing 12 to win recruits. So, they downplay the importance of recruiting, only to return to the well years later. Let us be clear: Firms need competitive recruitment, and there will always be strong demand for quality advisor talent. It is essential to the future success of the firm, especially during a period in which more advisors than ever are leaving for independence or retiring from the business entirely.
3. Advisors only move for money and/or when they’re unhappy.
We are not naïve to the reality of advisor movement. Transition deals play an important role in any stay vs. go decision—and they should. Moving a book of business comes with risk and hassle that advisors deserve to be compensated for. But it is almost never the driver, or even the primary driver, of movement among top advisors and teams. Rather, the most successful transitions these days are borne out of both ‘pushes’ (frustrations and/or limitations at your current firm) and ‘pulls’ (something exciting that you can’t ‘unsee’ elsewhere, which can certainly include transition money).
4. Firm retire-in-place programs are the only way to retire.
Retire-in-place programs (also known as sunset programs) have made headlines in recent years as they have become more prevalent, aggressive, and expansive. These days, it’s not uncommon for firms, including all four wirehouses, to offer advisors north of 200% of revenue simply for sunsetting in place. But make no mistake: These programs are far from the only, or even the best way, to retire from the business.
For an advisor who wants to maximize the economics of a transition, a move to another traditional firm before sunsetting may be a better route (“move once, monetize twice”). And that’s to say nothing of the countless possibilities available in the independent space, in which Gen 1 and Gen 2 advisors alike can custom craft succession plans—in stark contrast to the formulaic plans offered by the big traditional firms, which typically come with very restrictive legal covenants attached.
5. Long-tenured advisors seldom move.
This is not wrong, per se. It’s simply outdated. It was once true that long-tenured advisors were the least likely to move: They had a direct line to the top of the house, were generally well served and plugged into the firm, had significant deferred compensation they stood to walk away from, and felt loyalty to the firm where they built their book. But these days, we see long-tenured advisors moving virtually every week. Why? In part because these advisors had a front-row seat to see the rapid and widespread changes at their firm. And they realize a hard truth: firms change, businesses change, teams change, and what “got you here” may not “get you there.”
Also, they often feel a deep sense of loyalty and responsibility to the next-gen, and they want to ensure they are leaving them in the best possible position to succeed. This same “myth” applies to the largest and most productive advisors in the industry. They’ve seldom moved in years past (for similar reasons as long-tenured advisors), but in the new world order of wealth management, these advisors are changing firms because they have the most to gain. They’re thinking of their business as a business and ensuring they make every effort to optimize its value. Plus, advisors who manage mega-books of business require access to more sophisticated products and solutions that may not be available within their current firm.
6. Going independent means self-funding a transition.
Historically, a transition to a W-2 firm meant a robust recruiting deal, while a move to an independent model (an RIA or broker/dealer) meant little to no capital upfront. In the new world order, there are countless ways for an advisor to finance a move to independence: benefit dollars from the asset custodian, transition dollars from a broker/dealer, a specialty debt lender, a minority or majority sale of equity, a merger with an established independent firm, a working capital loan from a platform provider, investments from family, friends and clients.
7. Advisors who move experience significant shrinkage in their business.
Many big firms report some scary data around advisor asset portability. The problem with these statistics is that they are often either misleading or false. For example, many firms report that advisors who transition only move 50% to 70% of assets to a new firm. But usually, such data makes no mention of two important factors: 1) time and 2) advisor choice. Typically, by the 3-month mark, quality advisors successfully transition 85%+ of assets that they wish to move to a new firm. We emphasize the fact that many advisors willingly choose to leave certain assets behind (typically because they are unproductive or difficult to manage), so the notion of “shrink to grow” becomes an important one.
8. M&A activity has slowed down.
M&A activity in the RIA space is often used as a proxy or temperature check for the independent space. The thinking goes that if M&A activity is robust, there is clearly a strong market for quality independent businesses. So logically, the notion that M&A has slowed down concerns advisors and investors in the space alike. But the truth is, it hasn’t really slowed down. It is true that firms are being more selective about how they deploy capital, but we saw a record number of deals completed in the last year and near-record multiples. Yes, a short list of buyers completes most deals in this space (Creative Planning, Wealth Enhancement Group, Beacon Pointe, Corient, etc.), but particularly in the upper reaches of the market, we see no signs of an M&A slowdown.
9. Private bankers and advisors with garden leave provisions can’t change firms.
There is no doubt that changing firms is easier and cleaner when an advisor has a lax employment agreement. Post-employment restrictions like non-competes, non-solicits, non-acceptances, and garden leaves, can present varying degrees of challenge for an advisor trying to move. But in virtually every case, these advisors and bankers are not stuck. We’ve seen and facilitated countless private banker transitions, some with as much as 6 months of garden leave. A firm may tweak the structure of a recruiting deal to reflect the higher degree of portability risk, but many firms today have a legitimate appetite for these books of business.
The rapid proliferation of the industry landscape is a great thing for advisors of all types. Ultimately, it means more choices than ever before. But with that, advisors are tasked with the responsibility of staying educated and informed about many new models, developments, and trends—even more critical is ensuring that education is based on information that is up-to-date, relevant and accurate.
Jason Diamond is Vice President, Senior Consultant of Diamond Consultants—a nationally-recognized recruiting and consulting firm based in Morristown, N.J. that focuses on serving financial advisors, independent business owners and financial services firms.