Rush is on: Recruiters pursue SVB advisors riding out collapse

When Silicon Valley Bank collapsed last Friday, Michael Terrana and his team of recruiters immediately began calling financial advisors at the California bank. Their question: Who wants to ditch the lending institution's wealth management arms for a new job at a competitor?

Terrana, the president and CEO of Chicago-based Terrana Group, oversees a sprawling network of consultants and recruitment representatives stretching across the U.S. And ever since the $209 billion institution became the second-largest bank failure in history, he and his team have been pursuing the more than 100 financial advisors and wealth managers at the collapsed bank's $16 billion registered investment advisory arm, SVB Wealth.

"They are reaching out to people they know," Terrana said of his headhunters. "They are reaching out to people they don't know. They are getting referrals.  But it's too early to tell what's going to happen."

Terrana said it's not yet clear what the advisors are likely to do.

"You'd think everyone would at least want a Plan B," he said. "But some of the folks out there seem to want to wait and see."

The implosion of the nation's 16th-largest bank has sent shock waves through global markets and prompted an extraordinary response by regulators, who will make Silicon Valley's technology business and high net worth depositors whole for the roughly $151 billion they held that wasn't covered by Federal Deposit Insurance Corp. insurance. The sudden cratering has also sparked an unplanned rush by financial industry recruiters to pick up talent in the wreckage — and a puzzle. 

Regulators are trying to auction off the entire bank, SVB Financial Group, which includes affiliated asset managers and one broker-dealer: SVB Asset Management and SVB Wealth LLC, both SEC-registered investment advisors, and bank and broker-dealer SVB Investment Services, which also functions as a registered investment advisor. The company also has an investment banking arm, SVB Securities.

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An auction last weekend produced no buyers for SVB Financial. But private equity firms and Wall Street banks — including JPMorgan Chase, PNC Financial Services Group, Apollo Management and Morgan Stanley — are showing interest in acquiring pieces of the company, Reuters has reported. Amid it all, it's hard for a headhunter to know who might peel off singly and who might seek to make a team move.

The good news is that clients of the bank's wealth management arms shouldn't feel any pain from the collapse. That's because the bulk of the $16 billion in assets managed by SVB Wealth are held in custody by Fidelity Investments and Charles Schwab, keeping them out of the reach of creditors. SVB Financial's separate brokerage unit, SVB Investment Services, uses Boston-based National Financial Services as a custodian of its more than $1.4 billion in assets.

Louis Diamond, the president of recruiting firm Diamond Consultants in Morristown, New Jersey, said the separate custody should make a transition easier for any advisor who decides to look for employment elsewhere. Diamond, who declined to say if he's working with anyone from SVB Wealth or other Silicon Valley Bank affiliates, said it's not yet clear if the wealth managers will be better off somewhere else.

"It's not like this was months or days in the making," Diamond said. "So unless some of their advisors were exploring their options already, it's going to take them time to at least do due diligence and figure out where they are going to go. And if the wealth unit is going to be sold off, some are probably waiting to see who the buyer is."

Jodie Papike, the president of recruiting firm Cross-Search Advisor Placement Services in Encinitas, California, said SVB employees are also thinking about their clients' interests. If a good buyer does come in, then advisors and investors alike might be best off staying put.

"Most are probably asking themselves, 'If I stay here and don't have to put them through that change, is that better for them?'" said Papike, who added that she hasn't been in touch with any SVB employees. "Or is there something out there that would create a better opportunity for my clients?"

Disputes over what information departing advisors are allowed to take out the door are rampant in an industry rife with recruiting and job-shifting. Situations involving trade secrets are often associated with employee brokerage firms like Edward Jones or with wirehouses whose advisors are direct W-2 staff employees. Papike said it's unclear if SVB wealth advisors are considered direct employees or independent contractors. 

A report Diamond Consultants released on March 1 found that 9,000 advisors with more than three years of industry experience changed firms in 2022. That came out to an average of 750 moves a month. The report, which drew on data from research firm Cerulli Associates and licensing registrations with the Financial Institution Regulatory Authority, brokerages' self-regulator, found that 30 teams managing more than $1 billion changed firms last year. 

Some of the biggest increases in headcounts last year came  at independent broker-dealers like LPL Financial and Raymond James. Also popular was the "supported independence" model. RIAs who choose supported independence typically rely on third-party companies for custody of assets, help with regulatory compliance and other advisory practice functions.

Both and Papike and Diamond cautioned that any SVB advisors who are thinking of leaving would do well to first check their contracts for any nonsolicitation and noncompete clauses. The former, which are common in the wealth management industry, typically prohibit advisors from reaching out to former clients for a certain number of months after leaving a firm; their noncompete cousins, less common among advisory firms, ban working for rival companies within a certain geographic area.

Silicon Valley Bank's business was confined mostly to California, which has one of the strictest bans on non-compete clauses in the country. But SVB Wealth has its main office in Boston and other outposts in Texas, Florida, California, New York, Pennsylvania, Massachusetts, New Jersey and Georgia.

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SVB Wealth was jump-started in 2021 when its parent company paid $900 million for Boston Private Bank & Trust.  In 2004 and 2010, Boston Private had acquired New York-based KLS Professional Advisors Group, which had served high net worth lawyers and other professionals. Boston Private went on to buy Palm Beach Gardens-based registered investment advisor Banyan Partners in July 2014.

SVB Wealth's latest Form ADV, filed with the Securities and Exchange Commission on Oct. 19, listed 108 registered advisors and 25 licensed brokers with $15.9 billion in assets under management. Of that, $13.8 billion was managed for 2,019 high net worth individuals. 

SVB Financial's brokerage business, SVB Investment Services has 64 licensed brokers, according to the Form ADV it filed on June 30. It had $1.47 billion in assets that month, $1.3 billion of which belonged to high net worth individuals. Both SVB Wealth and SVB Financial Services operate under the marketing brand SVB Private.  A third affiliate, SVB Asset Management, managed more than $85 billion, mostly for corporate and business clients, according to the Form ADV it filed on Sept. 1. 

The bank's demise on March 10 was triggered by heavy investments in Treasury bonds and highly rated mortgage-backed securities, both of which plunged in value on recent interest rate hikes.

Meanwhile, Diamond said he doesn't expect the "Silicon Valley Bank" or "SVB" brand names to haunt advisors who might be looking to move on. 

"It wasn't anything regulatory, and it wasn't bad actors in these units," Diamond said. "When Bear Stearns and Lehman Brothers collapsed in 2008, none of those advisors had any sort of stigma around them."

But not everyone thinks finding a new home will necessarily be easy for SVB advisors. Bill Willis, the CEO of recruiting firm Willis Consulting in Chicago, said a lot will depend on how close the wealth management employees are with their clients. 

"I'm sure there are a variety of cases," Willis said. "But not everyone will be able to port out their assets. And it's not really their fault."

Willis declined to say if he's working with any SVB clients.

Diamond said whatever prospects SVB advisors might see in their immediate future, it behooves them to be "on the offense" in looking out for both their own and their clients' interests.

"These are really experienced advisors and good advisors with decent books," Diamond said. "But you can't just wait to see what happens."