Smaller Pay Packages
Given the dearth of new blood coming into the industry, competition for experienced-and successful-advisors is keen. Wirehouse and regional broker-dealers, and even some independents, increasingly are targeting producers with $500,000 or more in production. At the same time, firms are purging lower-end producers, raising production minimums and scaling back their compensation packages.

"You used to be able to get a deferred compensation package and bonuses with at least $400,000 in gross dealer concession, but now it's going above that," says Dennis Gallant, principal at GDC Research, an industry consulting firm in Sherborn, Mass. "The combination of high overhead and the cost of chasing top producers has come home to roost at wirehouses, because when everyone started losing money they realized they couldn't afford to keep their low-end producers."

And the wave of mergers and acquisitions last year among giant financial institutions (think Merrill Lynch and Bank of America, Wachovia and Wells Fargo, etc.) created an unsettled landscape for affected advisors. "You've got Smith Barney and Morgan Stanley coming together, so you know there will be some attrition there," Gallant says.

The upshot is that a lot of reps are on the move, even if it's involuntary. For those making a change, most broker-dealer firms are willing to cover an advisor's transition expenses. The industry benchmark is 2% to 3% of a rep's trailing-12-months production, says Jonathan Henschen, president of Henschen & Associates, a broker-dealer recruiter in Marine on St. Croix, Minn. He says another dozen or so firms offer up-front transition loans in the neighborhood of a four- or five-year forgivable note for 10% to 20% of trailing-12-months production.

But those amounts are shrinking. Some firms that offered, say, a 10% note to a $200,000 producer, have raised that to $250,000, Henschen says. Or a $500,000 producer who could expect an offer with a 15% note now might have to settle for a 10% note. Or rather than offer up-front money, some firms would rather give new advisors a 100% payout for six to 12 months.

But not all advisors are focused solely on the pay packages and transition assistance. "I get reps trying to make what they can off of their trailing-12-months production," Henschen says. "Sometimes it's a matter of desperation on their end. But in most times they want substance with their new firms, and that's especially true with independent reps. And if that happens to involve transition money, that's icing on the cake."

The Big Two
Recruiters and consultants say the largest independents, such as LPL Financial and Raymond James Financial Services, have an advantage in recruiting wirehouse brokers because their brand recognition, scale and infrastructure creates a comfort zone for wirehouse reps making the leap to the independent side. They also have effective recruiting programs.

In the second fiscal quarter ended March 31, Raymond James said it recruited a handful of advisors from the likes of Goldman Sachs, Citigroup Global, Merrill Lynch and Wachovia Securities. All told, the total production of all advisors recruited by the company during the quarter was 72% more than the same quarter last year.

LPL, the nation's largest independent brokerage firm, saw new recruiting leads double last year to roughly 12,000. Of that, 72% turned into meetings. And recruiting jumped another 28% during this year's first quarter.

In August last year, LPL launched a hybrid platform serving both registered reps and registered investment advisors. "We're seeing advisors moving to LPL as registered reps with the intention of moving in the hybrid direction in the future," says Bill Morrissey, executive vice president of new business development for independent advisor services.