Some attrition for RCAP probably is inevitable but the challenge is to retain their most productive advisors. As long as RCAP maintains the individual brands and identities of its unique B-Ds, most advisors at those firms will be happy to stay put, says Tom Daley, founder of the Advisor Center LLC, an online recruitment service. “I would anticipate overall that it will be a minority” of RCAP advisors who end up moving, he says.

Advisors generally are reluctant to jump ship, Miller says. “It’s a sticky business. They’ve got to feel a lot of pain before considering a change.”

Regulatory risk is also having an impact on recruiting. Headhunters and firm executives say bringing on a new registered rep has never been harder.

“The environment is just different—there are no innocent mistakes anymore,” Webber says. “We really have to do our due diligence [and ask], ‘Why are you leaving your firm?’ If it’s a rush job, there’s probably a reason for it. Bad things do happen to good people, but you really have to understand the facts.”

Firms are under scrutiny by Finra for having too many problem brokers, Henschen says, so firms look closely at factors like compliance and credit issues. And they may not even offer a position to an advisor who raises regulatory red flags. “If you bring on more [advisors] with bankruptcies or credit issues, Finra [can] make life difficult,” he says.

Advisors themselves are also checking the compliance legacy of firms they consider, Henschen added. “Reps look at the record, and if there’s a lot of clutter, that could turn clients off.”

Other factors could be at work in slowing the recruiting game. A shrinking number of reps in the wirehouses is one. The big firms have trained fewer new brokers in recent years and have forced out smaller producers.

Daley predicts that the total number of advisors moving will stay below levels seen prior to the financial crisis, since the advisor population is aging and tending to stay where they are. Veteran reps for the most part have positioned their businesses the way they want, and are more likely to align with other advisors at their existing firms for succession purposes. The advisor thinks, “That’s easier on both me and my clients,” Daley says.

And B-Ds aren’t screwing up new technology rollouts as much as they used to, which has precipitated movement in the past, Henschen says. “The technology implementation has improved greatly versus five years ago” thanks to better outsourcing services, he says.

Even the weather gets some blame. Advisor movement in the first quarter may have been slowed by the cold weather, which has been blamed for economic weakness overall.

Finally, some observers anticipated that a Finra proposal requiring advisors to disclose their recruitment bonuses to clients might spur some firm-switching before the proposal went into effect. But in June, Finra pulled the rule proposal, which had been criticized by some firms as being too costly and lacking a cost/benefit analysis, and promised to float a new disclosure plan by year’s end.

Competition Rising
It’s no secret that demand for experienced advisors is strong. That means firms are competing aggressively, and up-front deals offered by independent broker-dealers have been rising.

Notably, Ameriprise Financial recently raised its signing bonus to up to 150% of trailing-12-months’ production, up from 120% for top advisors.

Most independents are much lower, around 25% up front, although “now we’re seeing 30% and 40% deals … from pretty high-quality firms,” says Kyle Selberg, senior vice president of business development for Cambridge.

Recruitment packages could creep higher still, he adds. “The closer you get to year-end in a tight recruiting year, the more the purse opens up.”

RIA custodians remain tough competitors as well. “With enough in fee-based assets, a lot of people are going to go directly to becoming their own RIA” firm, Miller says. For advisory firms, the custodians offer a more cost-efficient platform, he says.

Furthermore, despite rumors of their demise, smaller broker-dealers are still active in the recruiting game and can give the bigger boys a run for their money. Smaller firms are more nimble and offer independent advisors a personal relationship with top management. And improvements in technology have been a great equalizer.

“One of the mistakes [big] firms like LPL have made is becoming too dependent on development of their own technology platforms,” says Miller, who recruits out of LPL. “Over the last five to seven years, there are a lot of third-party tech companies that have come up with better mousetraps. … That really bodes well for some [smaller firms] that can put together a variety of tech partners [and] really get best of breed.”

Clearing firms have done a better job of letting smaller firms “deliver on these [technology] dividends,” Daley agrees.

Small firms just have to “make sure they’re evolving, and they have to be selective about whom they recruit [and] getting into product areas where they run a risk,” Daley adds.

LPL hears from advisors at smaller firms who are concerned their firms are not investing enough in technology and support, says Pirigyi. “If [advisors are] planning on being in the business for another 10 or 15 years, they want a good partner” who makes those investments.

Many reps, worried about financial stability, do favor a larger firm, Henschen says. But perhaps wrongly. “I deal with a lot of small firms that have been viable for years, and made money in good and bad markets, but perception is everything,” he says.
 
Tuck ’Em In
Among independents, the tuck-in trend is flourishing. So-called “tuck-ins” are advisors recruited to existing branch offices of independent firms in order to avoid many of the hassles of setting up a new firm. Existing branches offer recruits a ready-to-go office with staff support and mentoring, local expertise and a branch manager who handles administrative and compliance chores. Plus, there are opportunities for succession planning and a more attractive bottom line than a solo practice might have.

“If I’m a tuck-in, with technology and staff support already set up, I don’t have to make the capital outlay to set up my own company,” Daley says. And large branches can pass along higher payouts from the home office and get better deals from vendors. “I also can private brand my firm [and] maintain my own office” or join an existing branch, he says.

“I think you’ll continue to see the marketplace expand horizontally” this way with more tuck-in advisors, Daley adds.

Selberg of Cambridge calls the tuck-in trend “one of the key drivers for recruiting,” with half of the firm’s recruits joining an existing office. For the past five years, Cambridge has been looking to attract and support what it calls “branch builders,” advisors who build their own firm within the B-D and seek to recruit their own reps.

Cambridge now has close to 20 of these large-scale operations with multiple offices. The branch-builder channel “has tripled or quadrupled over the last five years,” Selberg says. “We have … branches now that are bigger than some B-Ds,” with about $30 million in production and a hundred or more reps.

Raymond James Financial Services added a new affiliation wrinkle last November by helping launch Steward Partners, a branch network founded by two former Morgan Stanley branch and complex managers, Michael Maurer and Jim Gold. Steward has developed a succession system for older advisors, who join as partners. Now with offices in Washington, D.C., New Hampshire and Maryland, Steward’s advisors control nearly $1 billion.

Curtis says he’s open to taking on similar operations with multiple offices. “We’re in conversations with a few people [about] doing just that,” he says. “The key is finding the right people.”

In addition to infrastructure, large OSJs can provide a voice for individual advisors, says Richard Dragotta, head of Inc. Advisors, a large LPL branch network with 90 advisors in 25 offices. “We’re among the top 10” LPL offices, he says. “We’re a big customer of LPL and can get certain services and access to management you might not get if you’re an island to yourself.”

Local transition assistance is especially important to recruits, Dragotta says, and his two offsite regional meetings every year are another inducement, attended by close to 100% of his reps. Large office networks like Dragotta’s may be meeting the desire for advisors to be associated with like-minded colleagues.

“Recruiting is challenging,” Dragotta explains. “Everyone thinks it’s about payouts, but it’s a lot more than that.… People want to be associated with other successful people” and not be isolated in an executive office suite.

“In the independent world, it’s all about relationships,” Daley says. “Advisors will always choose the relationship. They want to feel loved.”

 

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