October 2, 2019
The Financial Industry Regulatory Authority statistically validated on Wednesday what industry executives and recruiters have known in their bones: Brokers aren’t jumping among firms the way they used to.
Just over 10,000 of the securities industry’s almost 630,000 registered representatives moved in 2018 to other Finra member firms, down 63% from 27,433 in 2017, according to Finra’s annual Industry Snapshot report. The numbers equate to around 1% of the registered rep universe last year, and compare with 4% in 2017 and 9% at the peak of migratory patterns in 2009.
The report did not offer explanations for the decline. But many of the larger broker-dealers in recent years have veered to a strategy of retaining brokers through a combination of carrots and sticks while pulling back from expensive recruiting deals.
UBS has not reemerged from the 2016 declaration of UBS Wealth co-head Tom Naratil that it was slashing hiring targets and adding longevity bonuses for U.S. brokers.
Merrill Lynch wealth head Andy Sieg this summer reiterated its strategy of continuing with the near-freeze on hiring that it imposed in the summer of 2017.
And Morgan Stanley, which has been redipping its toes into the recruiting pool, still expects its brokerage force to decline over the next few years, wealth head Andy Saperstein said in June.
UBS and Morgan Stanley also have made it more treacherous for brokers to move by withdrawing almost two years ago from the Protocol for Broker Recruiting. The pact makes it easier for brokers to bring client-contact information with them when joining other Protocol signatory firms, and Morgan Stanley, among others, has not been shy about suing brokers who it accuses of absconding with client data.
Some industry executives and recruiters say that the Finra snapshot is just that—a static figure that does not account for a stirring of movement this year and a continued flow of brokers to become registered investment advisors who are not regulated by Finra. (The number of dually-registered brokers who became RIAs only, however, declined to 2,482 last year from 3,163 in 2017.)
Forgivable-loan deals offered by many firms to recruit and retain advisers during the financial crisis have been winding down, meaning brokers feel more confident about moving because they do not have balances to repay, they say. Brokers also are aware that the market may be near a top, meaning that the time is ripe to negotiate signing bonuses based on trailing-12-month revenue production.
“A lot of people are feeling like now is the time to capture this bull market if they want to capture their winnings,”said Jeff Bischoff, a Greenwich, Conn.-based recruiter.
The Finra data track brokers who have dropped registration with one member firm and re-registered within two months after that, and covers a range of jobs that can include retail sales associates, traders and investment bankers. But the bulk are retail brokers.
Industry movement peaked in 2009 when 69,175 registered reps changed firms. That year’s data are likely skewed by the fact that brokers at firms such as Smith Barney and Bear, Stearns were absorbed during the financial crisis into rival broker-dealers.
Last year’s movement of 1% of the rep universe contrasts with figures ranging from 4% to 6% in each year between 2010 and 2017, according to the Finra data.
The broad universe of brokers measured at yearend 2018 was 629,544, relatively flat with 630,273 at the end of 2017. The net number of newly registered brokers grew by 7% in 2018, but was offset by an equal number whose registrations lapsed last year, according to Finra.
Roughly 82% of Finra-registered brokers, or 523,169, worked at large firms that the self-regulatory organization defines as those with more than 500 registered representatives.
The overall number of firms, however, continue to slide. As previously reported, almost 120 broker-dealers disappeared in 2018, cutting the industry count to 3,607 from 3,726 at the end of 2017. The firm count is off 11% from 4,067 in 2014.
The statistical report by the industry-financed regulator aims to offer “visibility into the broad range of firms, individuals and trading activity that FINRA oversees,” it said.
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