As of March, Raymond James had 3,663 advisors, up by 241 from the same period a year ago. The firm doesn’t report recruiting data separately.
What’s the draw for independent advisors looking for a new home?
Industry recruiters say advisors are looking for firms with stable ownership and the resources to support everything from compliance and technology to practice management and succession planning.
Recruiting “continues to be difficult for firms that don’t have a lot to offer,” Papike says.
“A lot of the conversation recently has been along the lines of, ‘How will you help me sell my practice [or] grow my practice,’” SagePoint’s Auld says.
“Our primary story is our private ownership, and that we have a succession plan here, giving people a lot more comfort,” Schwartz says. A few years ago, Cambridge’s ownership plan was “the No. 5 concern; now it’s the No. 1 concern for a lot of people,” he says.
“Technology is still a big one” in terms of attracting advisor talent, Curtis maintains. “When people look at what they have technology-wise, it’s such an important connection with their firm. And cybersecurity is more and more important.”
DOL Spillover
Compliance resources and talent are especially important with the pending implementation of the DOL’s fiduciary standard rules, observers say. Some recruits “specifically joined” Cambridge because their existing firms lacked a workable plan to implement the rules, Schwartz says.
The DOL’s rollout of its rule “really did encourage advisors to take a look at their B-D, and at what their [firm was] doing to protect [them] against all these changes,” Papike says.
As the DOL’s two-part April 2017 and January 2018 implementation dates get closer, IBDs will experience greater disruption and consolidation, Morrissey says. “The DOL rule will be an accelerant of those trends.”
Larger firms, even assuming they’re adapting to the new DOL world, aren’t immune from poaching. Brokers at the wirehouses and some of the bigger independents are often fed up with bureaucracy, nickel-and-diming and loss of personal relationship with managements, recruiters say. Once the pain point reaches a high enough level, they start to consider other options.
“The frustrations are that they don’t matter [at their firms] anymore,” Commonwealth’s Daniels says. “And they fear there are other agendas going on at their institutions that aren’t about advisor support.”
Compliance burdens in general, and the added requirements from the DOL, might impact trends in the fast-growing hybrid channel. (Hybrids have their own independent RIA firm while also affiliating with a broker-dealer. Many of them custody advisory assets at a third-party custodian.)
On one side of the coin, some hybrids might be tempted to give up their securities licenses in the belief that running a pure RIA will make it easier to comply with the new DOL rules.
On the flip side, some might throw in the towel on running their own RIA and use their B-D’s corporate advisory instead, thereby avoiding some of the oversight and liability. That trend, if it occurs, could help IBDs recruit more reps and bring more to their bottom lines.
“Especially if [an advisor] is doing rep-directed advisory business, the billing and statement [fees] are big profit centers at B-Ds,” says Jon Henschen, founder of the recruiting firm Henschen & Associates in Marine on St. Croix, Minn.
But other B-Ds will have to think about throwing in the towel.
“Smaller B-Ds, the really small ones, with under 100 reps, are really getting serious about whether [staying in business] makes sense,” says Papike. “Regulation has gotten so difficult, expenses continue to go up, profit margins are shrinking, and it’s difficult to recruit because it’s … hard to do without a really great platform.”
Some of these smallish B-Ds are looking at operating as large OSJs, Papike says, landing a deal with a B-D and monetizing their business somewhat, turning over much of the administration to the dealer, and maintaining control of their advisors. “We see a big trend with that,” she says.
LPL has focused on recruiting into the “super OSJ” model and has a number of large offices that by themselves would be decent-sized B-Ds, many with a particular marketing focus. Morrissey says it works for attracting B-Ds that want to sell out, and also for attracting individual reps who don’t want to hassle with their own branch.
Cambridge hasn’t been looking to acquire B-Ds and turn them into OSJs, but it nevertheless recently did that, landing Protected Investors of San Francisco, a broker-dealer with about $8 million in revenue.
“It’s not our primary focus,” Schwartz says about the broker-dealer to OSJ conversion, but he’s looking into it after getting 10 unsolicited calls from B-D owners in the last year.
“There’s a bit of sticker shock for some of these [B-D] firms” though, after seeing some of the overvalued numbers real estate mogul Nicholas Schorsch was offering for broker-dealers several years ago, Schwartz says.
“And with the DOL [rule], there are a lot of unknowns” with broker-dealers, Schwartz adds. With transition costs and added pricing pressures (especially on firms that sell high-commission products), revenues and the prices owners might get from selling out will be on the decline, he says.