Covid-19 slowed recruiting efforts for independent broker-dealers for a short time, but most firms have come roaring back in the last few months.

Some of the independent broker-dealers believe the pandemic might even have had a positive impact on the industry because it forced them to operate more efficiently.

Commonwealth Financial Network is one such broker-dealer among several. “We had a strong start in 2020 and then a slow finish followed by a slow start this year, but now activity is picking up,” explains Andrew Daniels, managing principal of business development at Commonwealth. “Now we are focused on expanding our number of recruiters.”

The nature of the industry has shifted somewhat and not all because of Covid, he says. “Historically, we have been able to recruit by word of mouth, but about three years ago that began to change. The total scope of options for independent wealth managers has grown and evolved. That is a good thing for the industry, for the advisors and for the clients. Now we are getting more aggressive. We want to expand from six or seven recruiters to double that in the near future. We want to get in front of more folks,” Daniels says.

Commonwealth, the nation’s largest privately held independent broker-dealer, had $232.5 billion in assets under management at the end of 2020 with 2,012 advisor representatives, a dramatic increase from the $161.1 billion in AUM and 1,885 advisors at the end of 2018, and faster growth is predicted for the future.

“Even as we seek to recruit at a higher level, we are not recruiting higher numbers at any cost,” Daniels says. “We want firms that are client-centric. We are not trying to harvest the entire field [of available advisors]. We continue to take a targeted approach.” Connections made through videoconferencing are now as effective as in-person connections because representatives can still see each other while they explore new deals and everyone is becoming used to the new business techniques.

Likewise, Fidelity Investments also has seen activity pick up.

“We have seen continued strength of movement to the independent model and movement to broker-dealers is part of that,” says Charles Phelan, who leads the practice management and consulting group at Fidelity Institutional. “Advisors want to provide conflict-free advice and to be entrepreneurs” and the movement to broker-dealers reflects that.

“There was a dip in the pipeline for a while. It was frozen during the first of the pandemic, but by early May of this year it was starting the rebound,” Phelan says. “Firms pivoted from in-person ‘home office visits’ to virtual ones.”

Phelan notes that typically 7% to 9% of advisors move each year, and activity is back to that level after a pandemic-induced slowdown.

Fidelity supports all sizes of advisors and institutions that can affiliate with Fidelity directly or through another firm.

“Through Fidelity research, we got a good sense of the profile of a ‘mover,’” Phelan says. “Ninety-six percent of 500 advisors surveyed said they were happy they moved and 30% said their assets grew after moving. We are constantly refining our capabilities. The most important factor now is the acceleration of the adoption of technology for clients. When advisors make a move, they get a lot of support establishing their brand.”

The “churn,” or percentage of advisors making moves, dropped by 2% to 3% at the beginning of Covid, according to Richard Steinmeier, managing director and head of business development at LPL Financial.

“Fortunately, Covid has not impacted us as much. We have seen record recruiting,” Steinmeier says. Numerous teams have moved to LPL already this year, including both traditional advisors and wealth advisors who wanted to transfer to independence from wirehouses. In 2020, LPL added $41 billion in assets under management and in the first two quarters of this year $35 billion was already added.

LPL does not hinder advisors who might want to leave the firm. “Broker-dealers that create artificial barriers to firms leaving them have a subpar offering,” he says. “We let them leave and take all clients with them.”

“The general construct is we provide transition assistance, including loans that are forgivable after five or seven years, plus transition assistance up front and at the back end,” Steinmeier says.

Access to top-notch technology is one of the top reasons advisors join a broker-dealer. Cerulli Associates noted in announcing its “Cerulli Edge” report in February, “Technology was tied for the top spot among the factors most frequently cited by advisors as influencing their decision to join a broker-dealer. Advisors indicated that they plan to expand their use of advisor technology across the board, including client portals, e-signature, customer relationship management, and financial planning software, among others.

“The perceived importance of technology among advisors is likely to increase as a result of Covid-19, which has impressed upon advisors the benefits that technology can provide to their business by enabling them to communicate more effectively with clients, expand geographical reach and operate more efficiently, among other benefits,” the Cerulli report continues. “This gives a competitive edge to larger broker-dealer firms with greater scale, and more robust technology and platforms, which are vital to advisor satisfaction and retention.”

According to a Fidelity study called “The Five Stages of the Advisor Movement Journey,” broker-dealer activity has also accelerated because “the industry is continuing to undergo a shift from commission-based to fee-based revenue models. As a result, advisors are looking to move to firms that better support advisory-based business,” Fidelity says.

Advisor Group, which was formed in 2016 when AIG sold its broker-dealer business to a private equity company, has its own growth story to tell, and that includes the growth in its recruiting efforts during 2020, according to Greg Cornick, the firm’s president of advice and wealth management, and Kristen Kimmell, its executive vice president of business development.

Advisor Group now has more than 10,000 advisors and more than $500 billion in assets under advisement. “Where we are now at Advisor Group, our primary focus is on organic growth for our advisors. We are expecting a growth of 25% to 35% this year alone,” Cornick says. “We are seeing traction in employees leaving wirehouses and going independent.”

Advisor Group has been investing in technology and infrastructure to support advisors who are moving. The post-pandemic era will offer a tremendous opportunity for the firm, Kimmell adds. “We were seeing advisors take a step back during the pandemic and assess what they wanted in their business and maybe for their legacy.”

As a large broker-dealer, Advisor Group can offer resources of scale so advisors can provide more holistic planning and do things that weren’t in their job descriptions in the past, Cornick says. He predicts growth will continue in the independent model for advisors, which in turn will create more opportunities for independent broker-dealers.

Kimmell agrees. “Recruiting is a key priority for us. We can support independent advisors” through a number of kinds of affiliations. “We give them the independence and autonomy they need to grow.”

Not all advisors want to affiliate with a huge broker-dealer, however, but in-stead want a boutique firm, says Mark Contey, chief business development officer at LaSalle St. Securities, which has 325 representatives in total and a presence in every state. LaSalle St. brings on advisors who want a more local approach to the relationship with their broker-dealer, he says.

“Advisors are asking more questions these days about what we can provide,” Contey says. They also want to know what obstacles a broker-dealer can remove. “These questions are front and center and a

re the questions they should be asking. For advisors in different stages of their careers, we can customize their affiliation with us.”

At the core of all relationships between advisors and their broker-dealers is a matching philosophy about the financial industry, says Scott A. Curtis, president of the private client group at Raymond James. The industry is changing, and advisors want to select their affiliation model.

“We continue to see a migration of advisors to the fee-only model, which has grown dramatically, and we are building out services for this group,” Curtis says. “We are focusing on the RIA space because the growth in that space will outpace the more traditional affiliations and business models. Advisors can affiliate as independent contractors, work under the Raymond James RIA or be a hybrid of the two.”

“What has changed the most—not related to Covid but maybe accelerated by it—is technological flexibility. Two years ago, some technology we use now did not even exist or it was not used as much,” Curtis says. “For instance, a little thing like scheduling appointments online is now common. Another example of technology is the client being able to control his or her own finances online through Venmo, PayPal or Zelle.”

Raymond James explains that advisors do not have to operate a traditional business model in today’s financial industry. Advisors can associate in various ways, such as joining as an employee of Raymond James, backed by the resources of a large broker-dealer.

Another major shift in the industry in recent years is that broker-dealers have to offer ESG (environmental, social and governance) options for the advisors or they are not fulfilling their mandate from clients, Curtis says. Raymond James does the research for the advisor and gives him or her a more competitive advantage.

Third-party vendors such as Docupace are helping create more efficient affiliations between advisors and broker-dealers, especially advisors crossing business models. Docupace is a technology company based in Los Angeles that offers unified workflow and document management automation solutions for financial services firms.

The problem many advisors face when they are thinking of joining a broker-dealer is that they are not “transition ready,” says Docupace CEO David Knoch.

“A financial advisor is only likely to transition to a new broker-dealer once or twice in a career, and they become extraordinarily anxious about the move,” Knoch says. “With a third-party assistant, the advisor and the broker-dealer can relieve the tension and concentrate on transitioning the clients.

“One of the challenges many advisors face is preparing for the transition. We are working with an advisor now who has documents in many different programs and on different platforms. For instance, they do not know the tax brackets for all of their clients and the new broker-dealer demands that, so we help them become transition-ready. Being transition-ready even when you do not want to transition becomes a good business practice.”