Everyone knows it’s happening, but few admit it’s happening to them.

The problem: Broker-dealers are struggling to recruit financial advisors. The stock market is breaking new ground and revenues are streaming in, thus advisors seem loath to change affiliations—or break away from the big wirehouses. “It has become increasingly difficult and competitive to find qualified candidates, especially those who are the right cultural fit,” says Renee Newman, the senior vice president and wealth management director at Sterling Bank in Portland, Ore.

“The volume of advisor motion has slowed throughout the industry,” says Bill Morrissey, executive vice president of business development at LPL Financial in San Diego. But he says this is, in a sense, a cyclical problem. “Many advisors are postponing the decision to change brokerage firms because of the capital markets environment and corresponding increase in production. But that doesn’t mean they stopped searching altogether. It’s just lengthened the cycle.”

At the same time, he says, advisors who are on the move are “especially committed to doing their due diligence, which also slows the cycle.” And don’t forget, there’s more competition for them, Morrissey says.

But he’s not afraid of how it will affect LPL, the nation’s largest independent brokerage. The firm recruits across “all four major channels”—receiving roughly a third of its reps from wirehouses, another third from smaller independent firms, a fifth from insurance companies and the rest from banks and other financial institutions. He says this diverse pool improves the firm’s odds. That and the diversity of its business models—which accommodates both registered reps and independent RIAs using the firm’s custodian services—gives the firm more advisors to choose from.

“These are the reasons we continue to be a market leader in recruiting,” he says.

Still, he says the firm has beefed up its marketing efforts and tried new growth tactics like helping LPL-affiliated firms expand via acquisitions. “Strategic acquisitions have also broadened our platform,” he says.

Inducements
St. Petersburg, Fla.-based Raymond James Financial Services’ recent initiatives have doubled the number of prospective advisors in just the past year, says president Scott Curtis. “[We’ve] implemented some specific tactics while maintaining the same recruiting approach we’ve utilized for many years,” he says.
Among those tactics, Curtis lists a recently launched “Hybrid Select” plan for experienced advisors with at least $100 million in discretionary fee-based client assets, and new computer applications to integrate advisor data.

The firm has hired regional recruiting and relationship management professionals to help oversee its independent advisors division. It recently launched a referral rewards program offering up to $50,000 to advisors and their team members who successfully bring a new advisor on board. Less experienced advisors will be able to enter a two-year “advisor mastery” program. The firm has also taken steps to bring on more female advisors, and says that 35% of the participants in the first two advisor mastery classes are women—“double the industry average for female advisors,” he says.

Referrals
Referrals are definitely a key source for many broker-dealers. “I really believe birds of a feather flock together,” says Sterling Bank’s Newman. “If you find a quality employee, they are bound to know like-minded professionals.”

“We get most of our referrals from our clients, who happen to be our advisors,” says Marshall T. Leeds, chairman and CEO of Summit Brokerage Services in Boca Raton, Fla. “They are by far our best source for recruiting referrals.”

Leeds says that’s one reason it’s important to keep the current advisors happy. But for him, that means mostly focusing on retention rather than recruiting—though focusing on one over the other poses something of a chicken-and-the-egg conundrum.

“Recruiting new advisors will always be very important to our overall growth plans but not our No. 1 objective,” Leeds says. His advice for other broker-dealers: “You should always answer a call from an existing advisor before accepting a call from a potential new advisor.”

Looking For The Best Fit
Chris Flint, head of advisor and acquisition strategies at Lincoln Financial Network in Philadelphia, agrees. “Good recruiting starts with great retention, and great retention starts with selective recruiting,” he says. He uses the word “selective” because it’s no good recruiting an advisor who doesn’t fit the broker-dealer’s standards, let alone its corporate culture. It’s also more important to give advisors ongoing support than simply give them a higher payout. Higher payouts should be icing on the cake of the relationship.

“Those [broker-dealers] who have built their value proposition solely on payout with minimal support are struggling for retention,” Flint says.

External Events
Gregg H. Johnson, senior vice president of branch office development and acquisitions at Securities America in La Vista, Neb., says the industry’s reliance on referrals is a relatively new phenomenon. A few years ago, the major shifts going on in the independent broker-dealer industry—the mergers, acquisitions and regulatory changes—were enough to encourage people to move. “All of these contributed to a large number of advisors’ looking to change B-Ds,” he says.

But that hasn’t prompted as many migrations recently, he says. At Securities America, these changes have meant “more electronic tactics like targeted e-mail and Web site banner ads, better utilizing centers of influence and going to our existing clients for introductions,” Johnson says.

The firm has also expanded its business development team and added a new director of transition and support and a national director of recruiting to help shepherd newcomers. “This means more people talking to prospective advisors about Securities America and more resources available to support those advisors during the transition process,” he says.

It helps, of course, that the firm was acquired by Ladenburg Thalmann Financial Services, the Miami-based investment bank and brokerage, in 2011 (it was sold off by Ameriprise after running into trouble with private placement securities, and lost advisors in the process). Besides generating good press, the acquisition enabled Securities America to offer advisors additional services such as investment banking, asset management and trust services.
Altogether, Securities America had one of its strongest recruiting years in 2012, says Johnson, and it could surpass that this year.

Recruiter Compensation
In 2010, after a slowdown in its recruiting, Waltham, Mass.-based Commonwealth Financial increased its direct mail efforts and twice revamped its marketing “to tell our story from a new angle and cast a broader net,” says Andrew Daniels, managing principal of business development at Commonwealth.

The PR push helped. But Commonwealth has otherwise continued to maintain a “homegrown crew of salaried recruiters,” says Daniels. That they are on salary rather than commission is crucial to their effectiveness, he insists. “In a commissioned environment, it’s all about making the sale. Our salaried recruiters serve as gatekeepers. They are able to make careful judgments about prospective advisors to ensure that we’re only bringing on folks who fit us,” he says. “Moreover, we only want advisors who see the true value-added that Commonwealth brings them.”

He says the firm must treat prospective advisors like customers. “We have to be respectful, attentive, honest and return their phone calls the same day,” he says.

Nevertheless, Commonwealth has grown primarily through referrals, just like many other broker-dealers. The firm’s reputation is therefore paramount. “Even in times when recruiting has gotten more challenging, our brand recognition and advisor satisfaction—the productivity we bring to our advisors—serves us in good stead,” says Daniels. “If we deliver indispensable service to the advisor community, everything else takes care of itself.”