Recruiting loans by the numbers: Which firms invest the most, and least, in incoming advisors?

Andrew Tasnady says wealth management firms' recruiting loan balances can tell you a lot about their ambitions and strategies, but they can't tell you everything.

On one hand, said the industry compensation consultant and founder of Tasnady & Associates, the firms that have seen the greatest revenue growth in the past few years have tended to be those that have been willing to let outstanding recruiting loans pile up on their balance sheets. On the other hand, these balances offer little insight into how much of the revenue growth is driven by factors unrelated to recruiting.

Firms' assets under management, and the fees they derive from them, have generally benefited from the recent bull stock market. What's more, Tasnady said, some wealth managers have at least tried to drive growth by means other than recruitment. Merrrill, in perhaps the best known example, stepped away from recruiting for a few years to devote its energies to training new advisors and retaining existing talent.

"It's likely a combination of many factors over multiple years," Tasnady said. "The companies that have the biggest growth over time are often the ones that have recruited more, as long as you assume you have an average attrition rate."

Some firms, though, are recruiting at a pace that's barely fast enough to keep up with their advisors' rate of departure. Ameriprise, for instance, saw its headcount rise by less than 1% to just over 10,000 advisors from 2018 to 2023. Meanwhile, its recruiting loan balance swelled 117% to $1.2 billion.

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Philip Waxelbaum, an industry recruiter and the founder of Masada Consulting, said the numbers clearly show Ameriprise is treading water.

"Their headcount doesn't go down. It just doesn't go up," Waxelbaum said. "They recruit to meet attrition."

Ameriprise did not immediately respond to a request for comment.

Firms many times offer recruiting loans as part of the incentives they use to draw an advisor or advisory team from a competitor. The loans — technically promissory notes — usually are forgiven as long as recruited advisors stick around for a set number of years; but if they leave earlier, the outstanding balance on their loans can be clawed back in amounts running into the millions.

The size of the loans — often calculated as a multiple of an advisor's past year of revenue generation — gives firms reason to be judicious about how much they're willing to offer.

"And again, Ameriprise, to me, is the standout because they've got this huge balance and they're not growing," Waxelbaum said. "So if your loan balance keeps getting bigger and you're not getting better, you need to spend some time figuring out what the hell you're buying."

Contrast Ameriprise, Waxelbaum said, with a firm like LPL Financial. The largest independent broker-dealer has more than doubled its headcount over the past five years, partly through recruiting and partly through a series of large acquisitions. 

Its headcount exceeded 22,000 in 2023. In the same five years, its recruiting loan balance rose by nearly 400% to $1.48 billion and its annual revenue by nearly 94% to just over $10 billion in 2023.

"And these numbers will only grow as they too continue to be, in the independent world, the most aggressive recruiter in the business," Waxelbaum said.

For more insights into firms' recruiting loans, scroll through the charts below.