Independent broker-dealers step up their recruiting efforts among reps and the already liberated.

    When Michael Preston made the decision to launch his own financial advisory last year, after six years at UBS Paine Webber, Preston and his two partners knew exactly where they didn't want to custody the $88 million they brought with them: any place that smacked of a wirehouse.   
    "When we started shopping around for an independent broker-dealer, we looked seriously at three firms. You could feel the difference the minute you walked in their doors," he says. "At two, there were mahogany-lined walls and we met with folks who weren't anywhere near the top of the food chain. It felt like we were back at a wirehouse. I'm glad we made the decision we made," says Preston, who along with his partners decided to sign on with Commonwealth Financial Network in January 2005.
    "We wanted to get as far away from that wirehouse mentality as possible. Commonwealth has helped us position our business for the type of clients and growth we're looking for," says Preston, 35, whose firm, New Harbor Financial Group, today has $101 million in assets under management. They also got the added benefit of owning their own business, which they will now be able to build and sell as they see fit.
    The anti-wirehouse sentiment among brokers and advisors transitioning over to independence has far-flung ramifications, not only for the wirehouses they are leaving but also for the independents that are recruiting them. "With the majority of brokers (60%) saying if they left their current situation they wouldn't want to work for another wirehouse, it is critical for broker-dealers to understand what is driving broker satisfaction so they can do everything in their power to recruit and retain the strongest producers," says Sandra Metraux, executive vice president of National Financial, a Fidelity Investments company.
    She should know. Metraux just spearheaded National Financial's second annual survey of broker satisfaction, and the news for wirehouses was not good: Only 11% of brokers surveyed said they would continue to choose to work with a wirehouse, while more than half of all brokers (51%) said they would prefer to work with an independent broker-dealer or a registered investment advisory firm.
    "The data is clearly showing that brokers no longer see wirehouses as having the most compelling benefits," Metraux adds. "The research is clearly pointing to the fact that brokers don't want to be pushing transactions. They want relationships and recurring revenues."
    While going head to head with wirehouses in terms of up-front bonuses can be tough, (since some offer as much 150% of trailing 12 month commissions), "independent firms are trying to make the transition to business ownership easier by providing newly recruited reps with transition-assistance packages (sometimes including money for rent, furniture and account termination fees) as well as higher payouts over the long term," says Bill McGovern, president of B/D Search, a consulting and recruiting firm in St. Petersburg, Fla. McGovern, a long-time broker-dealer executive, most recently as a senior vice president with Raymond James, says that while reps can have their heads turned by pricing, best payouts and front-end deals, it's his job "to help them dig deeper and find the best long-term fit for the type of business they want to do."
    The desire for business ownership, coupled in many cases with strong anti-wirehouse attitudes among investors, continues to create robust recruiting growth at almost all of the independent broker-dealers interviewed to for this article. "I don't know what it is, but this has turned out to be a banner recruiting period for us," says Janice L. Hart, vice president of national field development at Commonwealth. "I'm amazed at the folks who are in my recruiting pipeline. I just sent an e-mail to our human resources department to ensure that we're staffed for high recruiting volumes."
    Hart says Commonwealth, which boasts the highest average broker production among independent broker-dealers (with average rep payouts of $250,000), has both wirehouse and independent reps in the pipeline with production in the $500,000 to $850,000 range. "We are seeing people coming in the door from UBS and Merrill Lynch, AG Edwards, Ameriprise, AIG (Advisor Group), Lincoln Financial and even LPL and ING," Hart says.
    Commonwealth grew its total number of affiliated brokers to 1,100 in 2007, adding a net of 120 new brokers. "These are not the people getting kicked out of their broker-dealers. This is not just about production. There are some people who, when you take them out of the environment where they have employee support and put them in an office alone, it becomes a lose-lose situation for everyone and that's not what we're looking for. We want people who are successful in business, the people who are going to love us and find a great fit."
    As the company continues to grow its affiliated broker ranks, it is also shedding low-level producers. "Yes, we did some purging," Hart says. "We let people know who are south of $100,000 or $50,000 and clearly not in this business full-time that, effective December 31, it's just not a fit anymore."
Commonwealth is also working to ensure that advisors who want to offer fee-based arrangements to clients have all the resources they need from the broker-dealer. "We're really not driving assets down any particular track, but we think we have built an incredible fee-based program. For instance, we've tripled the number of institutional-quality money managers we offer in the last year," Hart says.
    "I think the quality of our programs and people will continue and production will just keep getting higher," she adds. "As important, we don't work on commission, so it allows us to be gatekeepers and keep the entire Commonwealth community in mind when we bring people on."
    Valerie Brown, president of ING's Advisor Network, is seeing an equally dynamic emigration from wirehouses as well as from other independent broker-dealers. "We've been talking about the burgeoning interest on the part of the wirehouse channel toward independence for some time and now we're starting to see that trend break loose for real," says Brown. "We're also seeing a real interest on the part of brokers in the dual model of maintaining a broker-dealer affiliation while they build a fee-based practice."
    ING grew its affiliated network to approximately 7,500 reps last year, up some 10% over 2005. "Our focus is on larger producers and those seeking to build their business over time," she says. "The type of wirehouse people we're attracting are looking for more fee-based business. They want to own their own business and believe in that upside, yet still want the value of the ING brand."
    That combination has culminated in average gross payouts per rep of a little over $200,000, Brown says. "I see 2007 as a continuation of this success for our reps and ING," she adds.
    Raymond James Financial Services continued to grow its broker-dealer affiliates as well, to nearly 4,000 reps, with average payouts topping $240,000, says Bill Van Law, who heads up recruiting as senior vice president and national director of business development at the firm. Van Law says that both wirehouse and independent reps are joining the company, bringing a steady stream of new assets in the door. No doubt Van Law, who joined Raymond James in 2006 from Merrill Lynch's Greensboro, N.C., office, will be instrumental in seeking out successful wirehouse brokers as well as tailoring the firm's products, services and culture to reps' burgeoning anti-wirehouse wish list.
    "I think it's just a great time to be in our business and be independent," Van Law says. "You get the advantage of a household name and state-of-the-art services as you build your own business. What could be better than that?"
    Chris Radford, executive vice president of national sales at AIG Financial Advisors, says that while it's difficult to beat the 30% growth in new affiliated reps the firm attracted in 2004 and 2005, a pronounced uptick of new recruits toward the end of 2006 and into 2007 is promising. "We're seeing a lot more $1 million branches in the pipeline. We are also seeing advisors band together and do a lift out together from wirehouses, which creates larger offices coming on with us," Radford says.
    As important, he adds, are the number of affiliated brokers who are enrolled in the personal coaching programs the firm offers-currently more than 20% of the firm's affiliated reps are receiving coaching. "We see $800,000 shops go to $1.5 million. They realize that they can literally double what they're doing as a result of coaching," Radford says.
    Despite having sold controlling interest in the company to two private equity firms in late 2005, LPL is more than holding its own when it comes to recruiting and will come out ahead in 2007, says Bill Dwyer, LPL's managing director of national sales. The firm closed out the year with 7,000 affiliated reps and average payouts of $225,000 and Dwyer says he expects both to rise in 2007.
    "I think it will be a fantastic year for independent broker-dealers and advisors," he adds. "The demand for advice is exploding and they're capturing more assets than ever before. I am more excited coming into this year than I've been in all the 22 years I've been in this business."