What the FTC’s New Non-Compete Ban Means for Advisor Recruiting

The publication in late April of a last Federal Commerce Fee rule banning most non-compete agreements nationwide sparked debate throughout quite a lot of industries the place the usage of such covenants is frequent — particularly in skilled and monetary companies.

In response to one Federal Reserve Financial institution estimate, practically one in 5 staff within the monetary companies trade report that they’ve signed a non-compete settlement — far larger than the prevalence reported in industries like development, training or public administration.

This has led to a number of dialogue concerning the last FTC rule among the many wealth administration and retirement advisor industries, now seeing excessive ranges of recruiting competitors and acquisition exercise, and a key thought is that the voiding of many non-compete agreements and the ban on new agreements — even for senior leaders — might supercharge this present pattern and end in even larger ranges of advisor motion throughout corporations and channels.

That looks as if an affordable assumption on its face, however within the expertise of Jason Diamond, a recruiter and M&A advisor at Diamond Consultants, numerous the dialogue about this potential disruption misses just a few key factors. Maybe most necessary is the truth that most of the advisors and groups who’re transferring as we speak truly aren’t topic to non-compete agreements.

“For instance, my understanding is that the majority wirehouse advisors don’t have non-competes in place,” Diamond stated. “Fro the non-public financial institution advisors, it’s extra frequent to have backyard go away preparations in place. Numerous advisors could also be topic to non-solicitation agreements, sure, however that’s a really completely different animal from an outright non-compete.”

The Present State of Play

First requested to evaluate the state of advisor recruiting and acquisition exercise seen up to now in 2024, Diamond stated there’s “nonetheless undoubtedly numerous motion happening,” even when the extent of exercise has fallen off from the document highs of latest years.

“I can inform you from the place I sit that that is nonetheless a busy time in recruiting and the M&A market,” Diamond stated. “We haven’t seen something like an enormous pullback on both entrance, which some individuals had anticipated towards a extra unsure market backdrop.

“What’s fascinating and funky concerning the motion as we speak is that it’s coming type all corners of the trade — from the wirehouses to the RIAs to the regional corporations. Each nook of the trade has seen each winners and losers,” he defined.

This factor for advisors and customers alike, in keeping with Diamond, because it means advisors are feeling empowered to discover a good match for his or her evolving practices. It’s additionally driving agency leaders to be extra attentive to their advisors and to reinvest of their companies and capabilities so as to defend their enterprise.

A Wait-and-See Second

On the difficulty of the FTC’s last rule, Diamond stated he’s nonetheless in a “wait-and-see mode,” because the rule is sort of sure to face authorized challenges, and its long-term future and enforcement might be affected by future political or coverage modifications. Nonetheless, he doesn’t anticipate a dramatic flip of occasions as soon as the FTC rule takes impact later this summer season.

“Once more, relating to the large wirehouse groups that get numerous consideration after they transfer, the actual fact is that non-solicitation agreements are far more frequent,” Diamond stated. “Virtually each contract has considered one of these inbuilt.”

Diamond stated his anecdotal expertise is that non-compete agreements do appear to be extra frequent within the employee-advisor RIA house, suggesting this pocket of the trade might theoretically see accelerated motion.