In a recruiting environment where advisory firms in all channels have been consistently offering piles of money to lure talent into changing jobs (and hauling their assets with them) an inevitable—though maybe unintended—result is starting to emerge.

Money alone is often no longer as compelling as it once was. “Consolidation is all around us, and there's a lot of people that are out there seeking new homes, new firms to partner with,” says Tammy Robbins, executive vice president and chief business development officer at Cambridge Investment Research. “But it’s not just about the up-front money. It’s also about the long term.”

And that means, she says, potential recruits are asking firms: How will they be able to grow? How will they be supported with compliance, back office, virtual office, technology and marketing? What bells and whistles are available to ultra-high-net-worth clients? And above all, what equity opportunities are there?

“These people have had relationships, and deep relationships, with their prior firm, sometimes for decades. And when they go through a transition, things change and a lot of times they lose those relationships,” she says. “So if they go out and look for a new firm to partner with, they really want to make sure that where they go next is going to be the last place that they go.”

That’s not to say up-front money isn’t important. But rather than simply have recruitment wars based on price, firms are finding ways to differentiate in other ways that might take the emphasis off the cash.

Much has been made of late about how advisors get to choose their own adventure in the industry—they can go to a wirehouse, an independent broker-dealer, a hybrid RIA or a pure RIA. They can be a broker, an investment advisor, or both. They can keep their firm or affiliated firm at arm’s reach, or locked in a full embrace.

Certainly, the full embrace pays more in the short term.

Jodie Papike, CEO and managing partner at Cross-Search, an Encinitas, Calif.-based recruitment firm in the independent broker-dealer space, says that up-front money has swollen about 25% over where it was just two years ago—at least for some advisors. “Some firms are really not shy about where they make their money. They make the most money off of advisors that are on platform with them,” Papike says. “That's where they're most aggressive with up-front capital.”

Meanwhile, what the advisor gets later after coming over will be a reflection of what assets they bring onto the platform; the firm likely sets a target for the new advisor to hit, with bonuses at six months, or a year, or as far out as three years, she says. “So if an advisor is really in growth mode, and they will be putting assets on platform, there can be a tremendous opportunity to get back-end bonuses that will compensate them for that growth,” Papike says.

Robbins says she’s observed firms and advisors measure their value in one of two ways, either as a percentage of an annual GDC (gross dealer concession) or as a level of basis points on assets.

Either way, she says she’s seeing recruitment deals in the marketplace of up to 100%, meaning the advisor’s value is 100% of their annual GDC marker or 100% of their basis points on assets.

Stephen Caruso, an associate director at Boston-based Cerulli Associates who leads research on the RIA industry, says that advisors who are open to being lured out of their existing practice have to overcome significant challenges, which makes the up-front reward extremely important, considering how long it takes to transition clients after the advisors move. “The challenge is how long it will take to grow their book back to where it is now if they exit,” he says. “Advisors are taking around 12 months to get their book back if they leave a firm.”

Recruiter and industry consultant Louis Diamond, of Diamond Consultants in Morristown, N.J., agrees with both Papike and Robbins. “Pre-Covid, an advisor getting 50% of their GDC to move was pretty competitive. But now I'd say, like the median bid for offer is probably like 75%. And then at the larger broker-dealers that can easily be around 100 basis points or 100% of GDC,” he says. “So the deals have almost doubled since the beginning of Covid.”

Manish Dave, a senior vice president at Ameriprise who leads the firm’s recruiting effort for experienced advisors, admits the competition for top talent is very stiff. “If I thought about where deal levels are today versus where they were 10 years ago, it's been a dramatic shift,” he says. “The best advisors who own really quality businesses, they're always going to have choices. They’re going to have choices to stay where they're at, and if they do make a move, there'll be a lot of capital that will be in play to reward them for that.”

Private equity has entered both brokerage and RIA industries, but the lofty multiples some institutions are paying for RIA firms make the option of dropping one’s securities license and going fee-only even more lucrative. Over the last two decades, some of the biggest names in the B-D world, including Ron Carson of Carson Group and Ric Edelman of Edelman Financial Engines, chose that path, before selling their firms.

Thousands of other advisors have followed a similar path. To retain these advisors, most of the biggest broker-dealers, including LPL Financial, Raymond James, Commonwealth and Cambridge, have established custodian operations for those seeking to go fee-only.

Volatility May Increase Succession Events
Dave anticipates that the fall of 2024 should continue to see a robust environment for recruitment, with high valuations and multiples, even as little blips of volatility have shown up in the markets. In fact, a little bit of volatility might actually increase recruitment opportunities, he says, especially for advisors who might be ready to sell their practice and retire.

“Just like clients will be taking some action between now and the end of the year as it relates to their portfolios and their investments, I think you'll start to see advisors also starting to make more decisions and looking to advance their vision, their business plan, as we enter into a little bit more turbulent times,” he says, adding that the impetus is simple. “If I'm an advisor looking to sell my practice, I'm thinking, ‘Do I want to go through another choppy market over the next six to 12 months and take my clients through that?’”

Far better to exit when markets are at a relative high, clients are happy and valuations rewarding, he says. “And I think all of those things are there.”

An estimated 30% of advisors are set to retire over the next 10 years, and with that, the discussions about recruitment invariably include talks of liquidity and succession, Dave says. “It’s front and center with almost every discussion that we have.

“You have teams that are multi-generational, where you've got partners that may be much closer to retirement,” he says. “And you've got potentially a younger generation on the team that may be looking for an event that takes care of the older partners who are closer to an exit, while at the same time serving their own need to grow and serve clients.”

To address the issue of liquidity and succession, firms have had to get creative to differentiate themselves. For example, Becca Hajjar, managing principal and chief business development officer at Commonwealth Financial Network, headquartered in Waltham, Mass., says that her firm has leaned into its next-generation advisor experience with a suite of training options to prepare them for succession, including yearlong coaching programs that turn next-gen professionals into firm leaders.

“They’re brought into the Commonwealth community,” she says. “So they have peers who are going through the same thing, whether they're going through our training, they're part of a business development group, or they're joining a study group. There are different ways that we get them involved.”

Frank Smith, the president, CEO and managing director at Private Advisor Group, a $35 billion hybrid RIA in Morristown, N.J., and one of LPL Financial’s largest offices, says that his firm has exploited its position in the industry to recruit some of the leading advisors in the marketplace. One of the things it has done to make itself attractive, besides being a good destination, is to hold itself out as an attractive acquisition target as well, a possibility that Smith says has been lightly explored.

There is no dearth of options. In 2020, former Cetera CEO and LPL president Robert Moore invested in Private Advisor Group and is now executive chair.

But even bigger players are circling the business. In August, Rise Growth Partners, a recently created, private-equity backed aggregator, acquired a minority interest in another large, New Jersey-based, LPL-affiliated hybrid RIA, Bleakley Financial Group, which oversees about $10 billion. Moreover, LPL itself has indicated it is making direct investments in firms within its network.

“It's the life cycle of our business, too,” Smith says. “The next phase for us as we continue to build and grow and recruit is [that] at some point we are going to monetize the firm. And the headline there is we're not going to do it in a disruptive way.”

Through an “alignment in equity” program, Private Advisor Group is buying small stakes, say 10%, in some of its leading affiliated firms, in exchange for equity participation in the monetization event. “Now they know they own a piece of our upside, and we own a piece of their revenue. This puts us on the same side of the table,” Smith explains. “The big show is when we monetize at some point in the future, the advisor practices that are equity participants have the opportunity to roll in more revenue if they want and maximize that upside.”

Lots Of Support Buoys Recruitment
Another facet of recruitment today, one that’s not about money, is addressing what advisors need as part of their transition. “In addition to wanting more alignment with us, they want to off-load even more things than maybe historically they thought they would off-load as an independent advisor,” Smith says about advisors he’s trying to recruit to his firm. “Independent advisors historically thought they had to be the CEO, the CMO—all the things—and now they’re saying they just want to meet with customers.”

So Private Advisor Group is moving toward a more fully supported independent model where the firm can offer its advisors marketing services, technology curation, access to custodian relationships at scale, cybersecurity and compliance. “As we’re evolving and the industry is evolving, we think there’s going to be a shift towards more support as opposed to pure independence, especially for Gen 2,” he says.

The next generation, he says, will operate their businesses very differently from the way the current generation of founders have.  “They’re not necessarily going to want to be in the real estate business or technology curation,” he says. “They might not even want to be in the marketing or lead generation side of things. They don't want to be bound by office space and geography, so they want to use technology more.

In some cases, the firm has handled leasing for advisors, hired staff, and managed payroll and accounting, he says. And for some recruits who have been identified but can’t take the time to iron out all the details of setting up a new office, Smith says the firm has shouldered virtually all of the effort.

“We’ve been testing in a couple of recruiting instances where we set up an office ahead of time for the advisor,” he says. “We’re doing the shadow leases and some of those things, all confidential. And they can come in, turn on the brand, turn on the lights in their office and make that transition.”

At Commonwealth, Hajjar also says picking up outsourcing has been a strong recruitment tool.

“We’ve always said that we’re time merchants, so our piece hasn’t changed,” she says. “What’s changed is what advisors are willing to outsource. Before, advisors were always very focused on doing it all themselves. Now it’s like, ‘We’ve got Commonwealth as our partner. Let’s leverage you.’”

Based on advisor demand, Hajjar says Commonwealth has added a virtual admin program, virtual para-planning and virtual transition support. And most recently the firm has added special support for ultra-high-net-worth clients.

“Prospective advisors are saying, ‘Hey, I have some very large clients. What type of support do you provide?’” she says. “Well, the needs of a $20 million or $50 million client are very different from the needs of a $500,000 client. So we’re making sure that we have the products and services available that that high-net-worth client wants. Not every $500,000 household client should have an alternative investment, per se. So it's about knowing your client and doing what's best for them.”

RIAs’ Advantage
Wirehouses have traditionally had multiple business lines and deeper pockets for recruiting, which have given them an advantage luring talent. To some degree independent broker-dealers have had those advantages as well, sourses say. But there remains one area where the fully independent RIA has the advantage.

If the recruitment prospect really wants the biggest possible upside at the end of their career, there’s nothing like being an equity owner in an RIA, says Cerulli’s Caruso. “Advisors that we talked to truly like the idea of building financial value in an independent business,” he says.

This is something that's portable, that has a true independent value and a value that they can see monetized by their peers on a regular basis. “They can transact it. They can have a liquidity event. In some cases, we're seeing advisors create generational wealth by transacting their practices,” he continues. “In terms of advisor recruitment, there's a long-term opportunity there that’s hard to beat.”