Bill Morrissey, the executive vice president and business development chief at LPL Financial, the nation's largest IBD, says the firm historically gets one-third of its recruits from the wirehouses, one-third from other independents, 20% from insurance firms and the rest from banks and other financial institutions. And it recruits from the registered rep, hybrid and custodial models. "The fact we recruit across all major channels has sheltered us from the cyclicality of the marketplace and lets us take advantage of when and where disruptions occur in the marketplace."
Morrissey says LPL's recruiting team has about 45 people, and the majority are outside consultants located around the country. "Their job is to get to know advisors in their territory and use a consultative approach to help them either go independent for the first time or to change their broker-dealer."
Morrissey wouldn't specify the size of the firm's transition package, saying only that the amount depends on an advisor's volume and mix of business, the types of accounts he or she has, and the fixed costs associated with either changing broker-dealers or going independent. "We're helping advisors launch their own small business, so the multiples for each advisor can be very different," he says.
Morrissey says one of the trends he's seen is the flight to quality in the IBD space. A number of smaller IBDs have shut down because they couldn't meet their net capital requirements or they got caught up in the Regulation D private placement snafus involving Medical Capital Holdings and Provident Royalties. "The consolidation rate has accelerated and will continue in the next couple of years, and we're seeing larger, more seasoned independent advisors looking at their options," he says.
IBD Movement
Indeed, some of the biggest players in the independent channel are scooping up their share of advisors from smaller IBDs. That includes Cambridge Investment Research, which does the vast majority of its recruiting in the IBD space.
"We're within shooting distance of our recruiting goals to add $60 million in new production," says Jim Guy, Cambridge's first executive vice president and chief marketing officer. The firm was at $50 million as of early October and had another $10 million in the pipeline.
Guy says his firm's value proposition includes its large variety of fee options (more than 50 third-party fee managers and ten fee platforms) and more than 50 new alternative investment products added since January 2009. "This has been extremely attractive [to new recruits]," he says.
Guy says the IBD industry during the past five years has gone from bare bones transition packages of maybe 1% to 3% of last year's trailing gross dealer concession to up-front packages of 5% to 40%. "Cambridge will never be at the high end of that, but we're committed to being competitive with other broker-dealers," he says.
David Fischer, the managing director at Independent Financial Group, says his midsize company (475 reps with expected 2011 revenue of roughly $60 million) recruits by turning the tables on some of the bigger players in the space. "The small to midsized independent firms are picking up advisors from the big mother ships among the independents," he says. "That's where 99% of our recruiting comes from."
He adds that people leaving the larger IBDs are telling him they're doing so because they're not experiencing the family feeling or getting the service support they once did. "Our attraction is we're smaller and offer more personalized service."
IFG doesn't get caught up in bidding wars for top brokers. "We don't pay up-front money because we feel it's a conflict of interest," says Fischer, adding that he expects IFG to add 100 new reps this year, which would be on par with last year. "There's so much movement out there that we don't need to pay up-front money. It's a culture fit for us, and we feel good about our product offering."