If 2009 was a banner year for independent broker-dealers to recruit new talent away from several imploding financial giants, 2010 will probably go down as a year of transition.

So far this year, independent B-Ds have faced heightened competition from wirehouses and RIAs paying higher compensation packages. But as the dust settles, the independent B-Ds have again begun recruiting in greater numbers. Sometimes it's through mergers and acquisitions. Sometimes it's by luring candidates with new strategies and better support services.

But they still face formidable opponents in wirehouses and RIAs, says Mindy Diamond, the president of Diamond Consultants, a search firm that focuses on financial advisors.

"The wirehouses are paying 330% deals," she says, "meaning a top quality advisor can get paid almost three and a half times his trailing-12-month production. But it's not all up-front. Only about 140% of that 330% is paid up front. The rest is earned by hitting certain bogeys tied to assets and revenues."

Diamond agrees that 2009 was an excellent year for recruiting-for both independent B-Ds and wirehouses like Morgan Stanley and Merrill Lynch alike. The beginning of this year was slower, she says, but the recruiting activity has picked up in the last couple of months.

Now the industry's participants are looking ahead to 2011 for new opportunities.

"I view 2010 as a year of transition," says Bill Van Law, the national director of business development for Raymond James Financial Services in St. Petersburg, Fla. The year 2009 was the best year the industry ever saw for recruitment, he says, but 2010 hasn't lived up to that.

However, he says, you have to put the firm's 2010 numbers in historical perspective: They were still 60% higher than they were in 2007, he says, and he is looking to 2011 to be even better.

"The trends are certainly in the right place," he says.

Most independent B-Ds gobble up new advisors from sources such as insurers, banks and other independent advisories. The vast majority of new recruits to Raymond James Financial, however, come from the wirehouses.

Pershing Advisor Solutions LLC in Jersey City, N.J., meanwhile, has instituted a host of new strategies to support and help clients grow their firms as the ranks of its RIA clients swell, says Kim Dellarocca, director of global marketing.

Big Changes In B-Ds
A number of big changes took place in the broker-dealer space in 2010. In the third-quarter, giant player Securities America Inc., the La Vista, Neb.-based firm with $53 billion in client assets and 1,900 registered reps, named a new CEO from its own ranks, Jim Nagengast, to replace 23-year company vet Steve McWhorter, who retired. Nagengast has been with the company since 1994.

Securities America is also hitting the acquisition trail. Among the smaller broker-dealers it has acquired is Brecek and Young Advisors Inc., Folsom, Calif., which came aboard in late 2008 with more than 300 advisors, after Securities America bought the firm from Securities Benefit Corp. in Topeka, Kan. Securities America is also actively seeking and attracting large branch offices to fold into its network. The firm's strategy is not just to recruit individual advisors one at a time but also to help branch managers build groups. In September 2010 it added the firm Equitas Financial in Grand Rapids, Mich., which brought along 45 new independent advisors. In 2009, Securities America scooped up one of the Financial Network's largest supervisory offices-Nate Bergeland/USAdvisors Network-as a new branch.

Securities America also has a concerted effort under way to grow in the financial institution channel.

From 2006 to the end of 2009, the company saw a 250% growth in gross dealer concession per advisor (GDC, the gross trails, fees and commissions), according to Gregg Johnson, the company's senior vice president of branch development. "We've seen some leveling off and slowdown in 2010, but we're optimistic for 2011. We think that advisors have seen their markets and practices stabilize, and are now ready to contemplate a change to a better position."

The industry has also seen a new player emerge this year from the rollup of three former ING Advisor Network brokers-dealers into a new firm, Cetera Financial Group, on Feb. 1. The three companies-Financial Network Investment Corp., Multi-Financial Securities Corp. and PrimeVest-were bought by private equity firm Lightyear Capital LLC and its fund Lightyear Fund II LP. The three firms have kept their names, but operate under the umbrella of Cetera, headquartered in El Segundo, Calif. Valerie Brown, formerly the CEO of ING Advisors Network, continues to lead the business as CEO of Cetera.

The Financial Network, also based in El Segundo, has 2,000 independent advisors, 1,300 branches and $310 million in revenues. The firm is going after individual reps and small supervisory offices but also after large advisory groups with more than $5 million in GDC, says Jack R. Handy Jr., president and CEO.

"The bear market and low interest rates have impacted the profitability of small B-Ds," Handy says, "so many of them are looking at how to stay in business but [also] outsource their back-office operations. We're the perfect solution for them because they can outsource technology, commissions and net capital issues, and bring their organization to us intact and focus on the sales and marketing side."

Handy says most of the new reps coming to the firm are from other independent B-D firms. "We also have a lot of reps new to the business," he says, "and these tend to be second career people."

2010 was a new beginning for Brett L. Harrison, the president and CEO of Multi-Financial in Denver.

"We were rumored to be on the block in 2008 and [we were] publicly on the block for most of 2009," says Harrison, whose firm has 1,000 financial professionals nationwide. "When our ownership changed, we looked at that as a new beginning. The real win in 2010 is that we held our own with regard to retention. In other words, we're not losing advisors."

Harrison says the company for two years has been recruiting more than it's been losing, and it's boosting its recruiting staff for more "feet on the street." The company plans to launch a full-scale marketing and direct mail campaign going into 2011, Harrison says.

One firm that continues to be dedicated to slow, steady growth is Commonwealth Financial Network in Waltham, Mass., and San Diego. Andrew Daniels, the managing principal of field development at the company, says the firm only wants to add advisors "where we fit them and they fit us."

"Every other B-D has a strong, proactive approach," he says, "and we remain predominantly reactive. I have five recruiters who are salaried, whereas at most B-Ds, the recruiters are compensated based on the percentage of production they recruit."
Daniels says the firm wants to attract people with a wealth management approach regardless of where or how they work now. The company has no set target for the number of advisors or gross dealer concession to recruit annually.

"Every B-D has to have table stakes of solid technology, a fair payout, and diverse and open product offering," says Daniels. "We have all that, and we wrap it with a service model that is as much about Commonwealth as a community as it is about being in business. I refer to it as an 'intangible Commonwealth.'"

Scott Carlson, a senior vice president of sales and distribution at Woodbury Financial Services Inc. in Woodbury, Minn. (a subsidiary of The Hartford Financial Services Group), says his firm has held its own during the bear market, and is on pace to record $237 million in gross revenue for 2010-up from $223.2 million in 2009.

"Our reps are well-diversified between investment sales, fee-based planning and life insurance sales," says Carlson. "We're looking for experienced producers from all environments and business models, including wirehouses and other broker-dealers."

The firm's payout is 90%, according to Financial Advisor's 2010 annual B-D ranking. Among the benefits Woodbury Financial offers are a deferred commission plan and company-funded deferred compensation.

Genworth Financial Investment Services in Schaumburg, Ill., hit the ground running at the beginning of the year and maintains it has already matched its 2009 recruiting target with room to spare, says Michael Abramowicz, a vice president of advisor recruiting.

Genworth Financial occupies a special niche within the B-D space. Most of its professionals specialize in tax and accounting disciplines and have added wealth management services to enhance their practices.

"Out of 1,900 advisors, 85% are affiliated with some type of tax or accounting practice," says Abramowicz. "We believe there's not a lot of trust out there. People want to deal with someone they already have a relationship with, and we view the tax and accounting professional as already in the driver's seat."

Peter Grifo, the vice president of recruiting at Cadaret, Grant & Co. in Syracuse, N.Y., sees a trend in the B-D industry toward higher costs at the B-D level brought on in part by efforts to recruit higher producing advisors, but believes 2011 will be marked by a return to value.

"I've seen a push in the industry to recruit producers at the $500,000 to $700,000 level in GDC," says Grifo. "That's fine. Our approach has been we'd rather take an advisor to that $500,000 level and beyond, and along the way build some loyalty.
"As we look towards 2011," Grifo continues, "I think there's going to be more focus on values as opposed to price. If I'm a successful financial advisor, I want to be certain of the services, the stability and the value my B-D is giving me." 

Bruce W. Fraser, a financial writer in New York, writes for many publications on wealth management, financial planning, investments, small business and the green environment issues. He is a frequent contributor to Financial Advisor and is writing a book on millionaires. Email  [email protected]. Visit him at www.bwfraser.com.