Recruiting activity among independent broker-dealers is regaining momentum now that the DOL rule is back on track.

Many advisors have been evaluating their broker-dealer relationships in light of the new requirements the DOL will impose. Big firms like LPL Financial and Raymond James are changing their payout formulas in response to the rule and others are likely to follow.

But independent broker-dealer execs say that some recruits in the pipeline held back on making decisions early in the year after President Trump ordered a review of the rule. That gave opponents of the DOL plan—including many B-Ds and independent reps—some hope that the rule would be indefinitely postponed.

But the U.S. Labor Department ended up delaying the initial implementation for just 60 days, to June 9, with potential changes still in the works and a full rollout set for January 1, 2018.

While implementation was up in the air, “some firms slowed down the work they were doing” for DOL compliance, and some advisors “also slowed down their search efforts, until they got greater clarity,” says Bill Morrissey, managing director of business development at LPL Financial.

“Some advisors went on hold, but they’re now back in the fray,” says Jamie Price, chief executive of the Advisor Group of broker-dealers.

Although reps move for a variety of reasons, preparation for the DOL rule is still at the top of the list advisors use when they evaluate a new B-D they might want to join. “Every single recruiting engagement today begins with, ‘Tell me about your DOL strategy,’” says Amy Webber, chief executive at Cambridge Investment Research.

The large B-Ds are hearing from both individual reps and smaller, competing firms, about a possible affiliation. Faced with higher costs and regulatory burdens, owners of smaller B-Ds are looking to sell out and retire—or continue by becoming the OSJ of a larger firm. Some independent RIA firms are in the same boat, B-D execs say, and are ripe for a move to the corporate RIA of a brokerage firm. Stand-alone RIA firms “don’t want the [regulatory] risk anymore,” Price says.

But the DOL rule is prompting some advisors affiliated with B-Ds to also examine the alternative. Scott Collins, director of brokerage independence at TD Ameritrade, reports that he is seeing as much interest from independent B-D reps going RIA-only as he is from wirehouse brokers considering breaking away and going out on their own.

Meanwhile, advisors are aging and in need of succession plans. Fees are under pressure, and client expectations have grown. All these factors have forced reps to take a hard look at their B-D partners, Morrissey says. The DOL rule has become an “accelerant” to underlying trends in the market, Morrissey says, echoing a common refrain among other industry execs.

That’s made for a good recruiting environment, adds Jodie Papike, executive vice president of Cross-Search, a Jamul, Calif.-based recruiting firm.

The DOL rule and industry consolidation have forced firms and advisors to make major changes, Papike says, “and change means people need to know what their options are. … Advisors are looking and seeing things they didn’t know existed at [other] firms. … There’s a feeling other platforms and models might be better.”

“So it’s really a reflective time,” Papike adds. “‘Do I change my business model, or change my B-D?’”

Recruiter Jon Henschen, of Henschen & Associates in Marine on St Croix, Minn., says most advisors who are in the market for a B-D want a larger firm.

“For small firms of under 100 reps, it’s been a real stretch for them in attracting people,” Henschen says. “They’re swimming against the current … advisors are more confident with large firms—firms with scale that they feel can survive the DOL.”

Advisors have been forced to look elsewhere if their current B-D will no longer support the type of commission business they are doing, such as brokerage products in IRAs and direct business with product sponsors. As a result, firms that have promised to support commission business or allow direct business have been using those things as recruiting tools.

Commonwealth is one firm that is requiring advisory accounts for IRAs, but Andrew Daniels, managing principal of business development, says the decision hasn’t impacted recruiting. “The type of folks who join here … are largely fee-based anyway,” he says. “They’re bringing in books [of business] north of 80% advisory.”

Robust Recruiting
Commonwealth’s target this year is $60 million in recruited revenue, and as of midyear the firm was “pretty much on pace,” Daniels says. Last year, Commonwealth brought in more than $50 million.

“We have our greatest success [with advisors] coming from other independents,” Daniels says. These are usually firms “that have gone through an upheaval, where economic changes or rapid growth is impacting service, or there’s been a cultural shift.”

Raymond James Financial Services had a record recruiting year last year, says the firm’s president, Scott Curtis. “This year, while we’re not on the same pace, we’re still having what looks like our second best year we’ve ever had.”

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