Ownership is a powerful lure for wirehouse brokers.

    While the control and profitability of owning his own business had been foremost in his mind for several years, "The timing and the maturity of our business had to be right," says Jay Morton, president of Morton Financial in Wellesley, Mass.
    All the stars aligned for the firm one year ago and they made the leap to independence, with Raymond James Financial Services as their broker-dealer and business consultant. "We wanted more control of our business. Many of the wirehouses are getting so homogenized, it makes it difficult to break out with clients," says Morton, who with partner Mike Capbianco had been building a significant book of business and clientele at Wachovia Securities for years.
    While the jump to independence can intimidate even the most sage broker, "the Raymond James salespeople were so passionate about their story that, along with the backdrop of a $3 billion publicly traded company, it made it easy for us and clients to feel very comfortable," Morton says one year later.
    Clients' comfort level was right at the top of Morton's priority list. "Going independent used to be thought of as entrepreneurial for the broker," he says. "Now it's mutually understood by brokers and clients alike that it's an appropriate and respected way to do business."
    The move was also a natural progression for the firm's partners and employees (today, the firm has two partners, three planners and two staffers). "Our clients have always been predominantly small business owners. So for years, we handled the money of all these small business owners and we never really knew what it was like for them. We thought we did, but we didn't," Morton says. "Now we do. We know what it's like to make a capital investment in our own firm. We can get excited about business growth and what it does to the bottom line. We understand a lot of the issues they're grappling with every day."
    Now, the folks at Morton Financial believe they have a major competitive advantage. "We're able to pick up the phone and articulate clearly that we are like [our] customers. We're able to see eye-to-eye with them, because we're business owners, too. We have financial freedom and the added advantage of being truly independent, versus buying a wirehouse's wrap program or mutual funds. We get to serve the client first and foremost," Morton says.
    That ringing endorsement is resounding throughout the independent broker-dealer channel these days. In fact, the number of incoming advisors and assets at Raymond James, Schwab Institutional, Fidelity's RIA unit and other independent broker-dealers year-to-date indicates that independent business ownership is becoming an absolute clarion call for wirehouse brokers. The trend is no doubt helping the tremendous surge in assets at independent broker-dealers, which have been growing at 16% annually for the past five years. Wirehouses have been growing at only 2% annually in the same period.
    "Because of our blend of products and our full-service platform, we tend to attract more wirehouse folks. That works well, because we just love to liberate them from their firms," says James A. Fulp, executive vice president and director of sales at Raymond James. Fulp and his team of recruiters have been instrumental in growing one of the largest and most profitable groups of independent brokers by more than 10% year-to-date. Raymond James had more than 3,380 brokers at the end of June, receiving average annual payouts of more than $240,000, the highest for any independent broker-dealer in the country.
    Raymond James is also attracting its share of fee-only folks, a growing segment of the independent population that many broker-dealers cannot yet serve. "We're just passing the $3 billion in assets mark," says Mike DiGirolamo, a senior vice president of the firm's investment advisor division. The average advisor is managing just over $100 million in assets under management [equivalent to about a $100,000 annual payout]. We were profitable in our fourth year and continue to attract high-quality folks, mostly from wirehouses and independents." DiGirolamo predicts that fees will account for as much as 50% of Raymond James revenues in the next five years, up from approximately 30% now.
    Maybe because of its huge network of advisors and its place as an industry leader in average annual payouts, Raymond James can afford to be picky about who it lets in the door. And that's what the company will continue to do, say both Fulp and DiGirolamo.
    "Not everyone will fit. In fact, RJ is really good at taking a hard line," Fulp says. "If you knock on the door with a big annuity book, I may tell you that you aren't going to work out here. It's all facts and circumstances. In fact, we do have an advisor whose whole business is annuities. He does tremendous due diligence on what each rider means and how to know if it will ever be of value. But he's unique in our system. On average, if someone is just selling variable annuities, or has a one-product practice, they won't fit our organization."
    Raymond James is taking a pretty hard line on variable annuities overall, going so far as to mandate that advisors affiliated with the broker-dealer earn no more than 7% in commissions over seven years. "It's a complex world out there for investors," Fulp says. "It's not that products are bad, but we don't want consumers to get confused. So our program is essentially like a C share mutual fund." Besides requiring that affiliated brokers sell only a list of approved annuities products, the company has made sure that the standardized product it asked vendors to produce is not proprietary. Anyone can put these annuities on their shelves to sell.
    Raymond James began rolling out its variable annuities program and limited payouts at the end of July. "The folks in Washington are saying that part of the role of broker-dealers is to protect the American public and to promote, if not police, what they pay for investments," Fulp adds. While much focus has been paid to mutual funds, the firm believes that it's only a matter of time before variable annuities will be next; thus the proactive limits. "We know that as boomers get into their sixties and seventies annuities can serve a very important place in their portfolio, but we want to make sure we maximize the benefits, so they can't be priced higher than what the market will produce in returns. We don't want anyone coming back to us and asking if the insurance feature on annuities was worth the 5% extra a year they were charged," Fulp adds.
    Of course, the firm isn't all buttoned-down. In fact, music and video aficionados looking for a new broker-dealer might want to take particular note of this one: Raymond James has started handing out $300 iPods loaded with a video pitching the firm to hot prospects.
    While other broker-dealers are taking continued attention from regulators seriously, they're also angling to recruit brokers and advisors who have somewhat mature businesses and an above-average chance to be fairly profitable and grow quickly. Janice Hart, vice president of field development at Commonwealth Financial Network, acknowledges the growth in new advisors and assets at the company allows her and her staff to be choosy about who they bring on. "I feel like we're in a great position these days to really focus on folks we believe will fit into our family here." Hart and the rest of Commonwealth's management make no bones about the fact that they recruit people they like. What they don't want is people who make life miserable or harangue staff. With more than 1,070 advisors earning average annual payouts of $221,000 (the second highest average payout in the field), Hart says Commonwealth has the luxury of being able to really drill down when it comes to looking at brokers' and advisors' backgrounds. "These days, if our compliance folks turn up something about an advisor that we missed, we're grateful. We don't want this kind of person getting into the system or working with investors," Hart says.
    She sees strong growth throughout the remainder of 2006 and into 2007. "We're expecting to continue to grow our network of advisors by about 10% a year," she adds.
Also on the lookout for fast-growing, multiple-advisor offices, as well individual advisors who earn gross dealer concessions of $250,000 to $500,000is Mutual Service Corp. Right now the broker-dealer has 1,410 reps on board, earning average annual payouts of just over $110,000.   
    "We know that folks in the $250,000-region have already gone through the initial growing pains and want to take their businesses to the next level," say Jay Vinson, MSC's vice president of new business development. The company works with firms on a consultative basis to try to get them to the $500,000 mark as soon as possible, and targets 25% growth in revenues in the first 15 months.          
    "First we determine if MSC has the valued-added services an advisor is looking for. Are we a good fit?" Vinson says. "If we are, we'll blueprint the advisor's book of business. We'll determine what their managerial driving factors are and put together a plan for their first 15 months with us. We'll integrate their book of business, train their staff and introduce them to all the services that are relevant to where they want to go."
    MSC also helps firms brand and market themselves in their local market.
    "What we're doing is offering to help firms grow through practice management support, a highly developed value proposition, a clear marketing plan and materials and an organizational structure that brings them greater success," Vinson says.
    The quality of advisors is always at a premium, but that also means that as value goes up, so do the costs of recruiting advisors. "As costs continue to rise, our answer has been to look for higher-end individuals," Vinson says. "Our minimum is just a starting point. Our main question is: Can we help you get to the next level. If the answer is yes, we can work from there."
    AIG Financial Advisors is also looking for branch offices with a minimum of $250,000 in gross dealer concessions. Currently the broker-dealer has 1,990 brokers in its network, with average annual payouts of $106,000.
    Growth of new recruits is evenly split between new producers and those who want to join an existing AIG advisor branch, says Chris Radford, executive vice president of national sales AIG Financial Advisors. The executive says he sees growth accelerating in four areas at AIG: the core group of traditional mid-sized brokers, which AIG focuses on helping to grow; smaller producer groups registered as broker-dealers themselves that want to concentrate on marketing and relinquish back-office and compliance to AIG; insurance brokers with significant securities business; and traditional wirehouse and regional firm representatives who want to join existing AIG affiliated firms.
    While the recruiting party will get tougher some day for broker-dealers who cater to independent advisors and reps, for now they are enjoying their competitive advantage:  They give brokers and advisors who want to own their own business the chance to do that. For those who have been working for a firm for years and paying a premium to build profitability for someone else, financial freedom can be a heady experience. "It's a great time to be in this business," says Commonwealth's Hart.