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forward . You either buy the “ cash cow ” firms — if you can find them at the right price ( and high-profit , slow-growth businesses are the definition of cash cows , according to Boston Consulting Group ). Or you recruit the professionals who can perhaps bring their clients along .
If we continue on this path , it ’ s only a matter of time until we see intense recruiting wars , with firms trying to poach professionals from one another . After all , if an advisor in a large firm is able to generate $ 1.3 million for $ 300,000 in pay , perhaps I can offer that person $ 400,000 instead and then recruit their clients . With a 36.4 % profit margin I can certainly afford to . In fact , it may be a better use of capital than buying the revenue at the high valuations .
Historically , independent firms have not engaged in recruiting wars ( conflicts that instead tend to rage among large , branded firms ). While large firms recruit from one another with forgivable bonuses of 200 % of revenue or higher , independents have shied away from that kind of behavior , perhaps thinking it runs against their culture ( or even that it ’ s in poor taste ). After all , if you live by the sword ( by recruiting ) you may die by it too ( by getting your advisors stolen ). Some independents have also staved off talent wars by offering equity to their best advisors .
But these bulwarks against change might be changing .
First , independents are no longer small or poorly capitalized . Many are voracious buyers with deep private equity pockets . They are willing to write checks if they see the return on an investment .
Second , equity at advisory firms is becoming less and less accessible to employees . High valuations make it expensive to buy in , and consolidation is making shares less available . Instead , professionals today are receiving either synthetic equity or equity in the holding company of their acquirers rather than the traditional shares of the firms where they ’ re actually working . These instruments are financially effective but don ’ t have the emotional staying power of real firm shares .
You can tell where this is heading . The recruiting wars are near . Advisor turnover is already starting to rise . Between 11 % and 13 % of senior advisors and advisors changed jobs in 2023 . This is much higher than anything we saw before the Covid pandemic . We are also starting to see headlines about large , acquisitive firms suing rivals for poaching their professionals .
The lines have also started to blur between independents and their old enemy , the wirehouses . Some advisors have been employed in the last decade by firms of all sizes — small independents , large acquirers and large wirehouses — without even changing jobs . They were just bought and absorbed into different organizations . If the cultural lines are blurring , it is likely only a matter of time until somebody decides that an acquisition strategy that works in a wirehouse can also work in a large , national , branded independent .
So profits are high , growth is low , and fierce recruiting is around the corner . Turbulence is expected . But in the meantime , the drinks in first class are exceptional .
PHILIP PALAVEEV is the CEO of The Ensemble Practice , the leading business consultants to the financial advisory industry , and founder of the G2 Leadership Institute , a leadership program that trains the next generation of leaders .
Buffer ETFs continued from page 45
right now and due for a correction , he says , especially those investors who are in or approaching retirement . That can make buffer funds more attractive . They can also be ideal for investors wanting to protect their assets without entirely missing out on future market gains , he says .
There are other reasons these ETFs may be a good fit for some clients . Michelle Connell , the owner and CIO of Portia Capital Management in Dallas , says her largest clients are foundations that must distribute 5 % per year . “ Buffered ETFs help ensure that these clients can make the 5 % without having to eat into the corpus or liquidate securities ,” Connell says . “ Buffered ETFs also help individual clients who need income — especially those that are receiving their required minimum distributions from their IRAs .”
She uses two dividend-producing ETFs — the JPMorgan Equity Premium Income ETF and the JPMorgan Nasdaq Equity Premium Income ETF , which uses the Nasdaq-100 as its underlying index . Both funds charge 0.35 % in fees . She says the equity market participation and the income stream together make the funds worth paying for .
Buffer ETFs might not appeal to “ aggressive investors that want to participate in market momentum ,” she adds . “ They will be disappointed with their performance if the markets continue to melt up .”
The high expenses of these funds and their limited upside are enough to make some advisors leery . One of them is Charles Weeks Jr ., the founder of Barrister in Philadelphia ( and a CFP Board ambassador ). “ I don ’ t find them to be beneficial for clients because of the opportunity cost the buffers create , along with the actual cost of the ETFs themselves ,” he says .
ETF sponsors are responding to such criticisms by introducing competitively priced products . But that might not be enough for those who prefer other cheaper products to fight equity volatility , namely bonds .
Pat Nerney , vice president of investments at Dynasty Financial Partners in St . Petersburg , Fla ., says interest rates will matter to those considering buffer ETFs . These are “ driving elements that determine the cost of protection and the corresponding cap [ on upside gains ],” he says .
Still , he dismisses the view that buffer ETFs are just a passing fad , adding that advisors have been using options to enhance returns for quite a while , and for the right client they can be rewarding .
“ Being able to offer clients market participation with some protection is a great way to get cash from the sidelines to work ,” he says .
58 | FINANCIAL ADVISOR MAGAZINE | SEPTEMBER 2024 WWW . FA-MAG . COM