A Slowdown In The Big Migration

Perversely, independent B-Ds would benefit if advisors were feeling a bit more pain.

That is to say, if equity markets were to sour, or if a major independent firm were to screw up, more advisors might be motivated to change firms.
As it is now, though, things are going well and movement is sluggish.

“It’s a very slow environment,” says Larry Papike, president of Cross-Search in Jamul, Calif., a recruiting firm for independent reps.

“For the first time ever, firms are calling me, saying, ‘Send me some business!’” he says.

Papike and others credit the lackluster pace to the IBD industry itself, which has done a good job of supporting advisors without any major slipups with technology or failed mergers that motivate advisors to find new homes.

“There are just no major drivers forcing advisors to change seats,” Papike says.

“Nobody moves until they’re in pain,” agrees Andrew Daniels, managing principal of business development at Commonwealth Financial Network. “You have to be hurting to want to change, especially in upward-trending equity markets.”

Industry turnover remains historically low at under 5% per year, according to Steve Pirigyi, executive vice president in charge of recruiting at LPL Financial, thanks to a six-year bull market and the lack of any major developments that would force advisors to shop around.

Cambridge Investment Research president Amy Webber still sees recruiting deals at around 35% to 40% of annual production—high for an independent firm and usually only available near year-end when firms are trying to reach recruiting targets.

Those richer deals “may be a product of smaller pipelines, and firms don’t feel they can back off,” Webber says.

The major headline event last year was the purchase of Cetera Financial Group by RCS Capital Corp. (RCAP), and the subsequent accounting scandal at American Realty Capital Securities (ARCP). Real estate mogul Nicholas Schorsch, a controlling shareholder of both ARCP and RCAP, later ended his associations with the firms.

Observers had expected some fallout over the Cetera deal and the accounting fiasco, but advisors at the RCAP-owned B-Ds haven’t rushed for the exits.
Spillover from the ARCP accounting scandal has faded as people have realized Cetera and its broker-dealers are independently run, says Adam Antoniades, president of Cetera Financial Group.

Doin’ Just Fine
Despite the recruiting lull, individual broker-dealers say they’re doing just fine in their recruiting efforts, helped along by the long-term shift toward independent platforms, the success of the independent channel and inflexible management at the wirehouses and insurance-owned B-Ds.

The maturation of the independent side has changed the perception of the channel for the better, says Ron Edde, co-founder of Millennium Career Advisors in Carlsbad, Calif.

“Three or four years ago, it was typically small teams going independent, and the perception was they were the ones who couldn’t make it in the wirehouses,” Edde says.

“Now I can say unequivocally that the people moving from wirehouses are not moving from a feeling of disenfranchisement as much as they are running to something,” he says, namely an opportunity to run their own practices and do better financially.

So despite relatively tepid turnover, independent firms are still attracting a decent amount of new recruits.

LPL added 372 net new advisors over the trailing 12 months ended March 31, 2015. In calendar year 2014, LPL added 363 reps, up from 321 in 2013.

“One of the big changes over the last 12 months we’re seeing is larger and larger groups” of potential recruits in addition to individual reps, Pirigyi says. “And that’s the same through all channels. … Larger groups are not happy with their broker-dealers.”

Cetera Financial Group’s broker-dealers recruited $23.5 million in net trailing-12-month production in the first quarter, up from $20.9 million in the fourth quarter of last year and just $6.2 million in the third quarter.

“The pipeline is probably as strong as ever,” says Antoniades. “A lot of people are beginning to explore” their options, he says.

RCS Capital Corp. (RCAP), closed its acquisition of Cetera about a year ago, and “it takes about a year to get back to speed” with recruiting, Antoniades added.