The stock market has spared no one in recent months, but broker-dealers have at least reaped one benefit from the poor investment environment: a boost in recruitment.

Poor equity performance, lagging sales and unstable working environments have apparently caused an increase in the number of discontented advisors these days. The slowdown in business means that many reps who opt to make the transition to a new brokerage are not losing nearly as much business when they make the switch.

As a result, many broker-dealers report they have a ripe field of prospects from which to choose-making 2002 one of their best recruitment years in recent memory. The surge in recruitment would seem to disprove one theory, which held that during bad market times, advisors are less inclined to make changes that will further inconvenience clients.

"It's wonderful to recruit in rocky times," says John Simmers, CEO of ING Advisors Network, which oversees eight broker-dealers comprising 10,700 registered representatives and $8.5 billion in assets.

"People are looking for answers to their business problems, their portfolio problems. They are looking for stability," he adds.

As a result, Simmers says, ING saw a net increase of 864 advisors in 2002 as of the end of June. "That is without any major advertising," he says. "It's just more word-of-mouth recruiting."

At Raymond James, recruitment is up 46% this year, and the number of people calling to inquire about a switch in broker-dealers is up 54%, says Richard J. Saunders, the company's senior vice president and director of business development. "Opportunities can be increased in markets like this, where the wirehouses of the world are being squeezed," Saunders says.

Smaller players also are reaping benefits from the down market. Six-year-old Wilbanks Securities in Oklahoma City is on pace to have one of its best recruiting years ever, says president, CEO and founder Aaron Wilbanks.

The broker-dealer has added 20 advisors this year, and now totals 70. That already matches the firm's annual growth rate of 45% to 50%, he says. Opportunities for finding talent are better than during the bustling market of 1998 and 1999, he adds.

"Everything was going great guns back then," Wilbanks says. "People had no time to look around because too many people were calling to want to buy Qualcomm. All those days are gone."

The reason people are moving, says Mark Goldberg, president and CEO of Royal Alliance Associates, is that advisors can no longer afford to be passive in their career outlook. "People will move because it's the first time in a while people had to stop and evaluate their practices and client base and make assessments on what's the best way to operate," he says.

That has forced advisors to look at issues they could easily ignore as the cash rolled in during the 1990s. Now issues such as the quality of technology, the objectivity of research and the freedom to pick what products to sell are higher on the agenda.

Prospects increasingly are getting turned off by payout reductions, dubious research, cutbacks in support staff and pressure to sell proprietary products, he says. "In a captive wirehouse arrangement, I think people are questioning more so today than ever before," says Goldberg, who adds that recruiting at Royal Alliance is up 11% this year.

The poor climate for financial assets is not the only reason reps are more inclined to move, says Wilbanks. "Management at firms they came from became heavy-handed," Wilbanks says. "CFPs in particular don't like things shoved down their throat."

One strategy broker-dealers don't claim to be embracing is increasing payouts, offering forgivable loans or providing other up-front cash incentives to lure prospects. Most of those interviewed, in fact, say they've made few changes in their recruitment programs this year-nothing significant enough to account for the increase in recruits.

Saunders says Raymond James has continued with the same recruiting strategy as in previous years-backed by a strong national advertising campaign designed to build brand-name recognition. The firm typically doesn't conduct target marketing, recruiting seminars or other aggressive methods to attract candidates.

"Candidly, our results from our traditional ways of becoming known in the marketplace, i.e. the advertising and so forth, has been enough," Saunders says. "We like to think that those looking at the independent contractor marketplace have our name already in their minds."

Raymond James typically gets 25% of its referrals from existing advisors, with the rest contacting the company as a result of various print, television and Web-based advertising, he says.

One firm that has put extra focus on recruiting is Mutual Service Corp. (MSC) of West Palm Beach, Fla., which made recruitment a corporate initiative in 2002, says Vince Cloud, executive vice president and chief marketing officer. The firm, he says, is on track to meet a goal of recruiting $20 million in production. That would be more than three times the recruitment rate in 2001, he adds.

MSC also has added some incentives and perks geared toward high-earning prospects, Cloud says. Between September and the end of the year, he says, offices that gross more than $500,000 in fees and commissions will be offered 100% payouts for their first six months if they switch to MSC. It's the second year the incentive program is being offered.

Like many other broker-dealers, MSC also offers compensation for transition costs on a case-by-case basis, Cloud says. It's an alternative many independent brokerages favor over the traditional up-front money or forgivable loans wirehouses use, because it helps new reps become productive faster.

The brokerage also formed a transition team last year that will provide on-site transition services for advisors for about a week, he says. "We found, actually, that people like this combination more than those large forgivable loans," Cloud says.

This partly is due to the fact that for an advisor to have such loans forgiven, they often have to meet certain production targets, he says. That's somewhat risky in today's market, Cloud says. "If their production goes down, the broker-dealer is going to share in the disappointment," he says. "Both can be losers in that scenario."

While up-front money can make or break a deal, over the long run, many advisors find that it comes with a price, such as higher fees and lower-quality service, says Bill Dwyer, executive director of branch development with LPL Financial Services. "Someone giving you up-front money is taking that from other aspects of the business," Dwyer says.

At LPL, where recruitment is up 12% through June, the emphasis is on long-term performance, he says. The average advisor will over time net 65% with LPL after all costs and fees, compared with 35% to 45% at a regional firm, he claims.

Those are the types of numbers advisors are paying more attention to as the market struggles, Dwyer says. "In good markets, reps tend to focus on their top line, their revenues growing," he says. "In bad markets, everyone starts to focus on the bottom lines."

Goldberg says Royal Alliance has structured its recruiting organization over the past year to support office managers doing the recruiting directly. "We prospect for them and give them financial backing, prospect letters, slide presentations-the whole gamut," he says. "It allows them to position themselves as the primary entity to recruit to."

Lucrative up-front financing for top prospects is not part of the formula, he says. "If it's going to be decided by who offers you the most up-front money, than the advisor is missing the point in terms of the best opportunity to grow the practice in terms of serving your clients," Goldberg says. "I prefer to compete on services."

Simmers of ING says he tries to have as many prospects as possible pay a personal visit to a branch office. That's because he feels the most important factor in recruitment is what he describes as the "personality profile."

"They get a feel for an organization when you start parading them through departments and leave them time to talk with key managers," he says. "I don't think it's the social graces, but what you have to say about the business."

There's one other factor that advisors need to consider-the financial condition of potential brokerages. "Recruits should be asking broker-dealers for their financial statements," says Jay Lewis, CEO of Nathan & Lewis in New York. "There's a flight to quality."

Brokerages should have at least $1 million in excess net capital and preferably more than $2 million. "First, examine their ability to survive, and then look at their ability to deliver services," he says. The fact that a firm should be financially stable doesn't mean it is positioned to reinvest in its business in the worst stock market environment in a generation.