Recruiting will become more expensive in 2011 as the fight for top advisers heats up among independent broker-dealers looking to bounce back from a lackluster 2010.
Recruiting will become more expensive in 2011 as the fight for top advisers heats up among independent broker-dealers looking to bounce back from a lackluster 2010.
Last year, some leading independent broker-dealers reported a 30% to 40% decline in revenue from recruits, compared with a year earlier, B-D executives and recruiters said.
“I can't remember a more difficult year to recruit,” said John Rooney, a managing principal with Commonwealth Financial Network. One big reason for the tough year was the lack of turmoil at other major independent broker-dealers, he noted.
At Commonwealth, newly recruited advisers and representatives generated about $40 million in revenue last year, down from $60 million in 2009.
Raymond James Financial Services Inc. hit a similar snag, with gross revenue from new recruits declining more than 40%.
Last year, reps “no longer felt this immediacy of making a decision,” said William C. Van Law III, senior vice president and national director of business development for Raymond James.
Plus, there's a lack of available reps from wirehouses, given that 2009 was such a strong year for recruiting. “Many have moved, are locked in and received retention bonuses,” he said.
Both Mr. Rooney and Mr. Van Law said they are seeing greater interest from potential recruits. Mr. Rooney and a few other executives pointed to the November public offering by LPL Investment Holdings Inc. as an event that's sparked some LPL reps to kick the tires at other firms.
William Morrissey, executive vice president of business development for LPL, refuted the notion that its IPO has made advisers restless. “The IPO has been well-received by our clients, meaning financial advisers,” he said. He added that the attrition rate at LPL was one of the lowest in the industry.
Still, officials at leading independent broker-dealers are feeling better about their prospects for the next 12 months. Those executives point to greater interest from brokers and advisers after a year of robust stock market gains that calmed representatives' nerves and allowed them the time to look for a better fit at a broker-dealer.
However, firms likely will have to pay up in order to reel in advisers with growing practices.
“In order to acquire growing and large practices, independent firms will likely have to pay more” than they've grown accustomed to in the recent past, said Larry Roth, chief executive of Advisor Group, a network of three broker-dealers that is part of American International Group Inc.
Asked about recruiting prospects for independent B-Ds in 2011, Jodie Papike, vice president of recruiting firm Cross-Search, said: “It's getting more expensive for a firm to be a winner.”
Industry executives and re-cruiters pegged upfront money to independent reps, typically in the form of five- to seven-year forgivable loans, at 5% to 10% of brokers' prior 12 months' fees and commissions. That number could double as firms fight over attractive prospects, Ms. Papike said.
BUYERS' MARKET
The last time a bona fide recruiting war existed among the top independent firms was in 2007. That's when the four upstart broker-dealers in the National Planning Holdings Inc. network offered some reps as much as 42.5% of their “trailing 12,” an unheard-of sum for independent broker-dealers. “It's a buyers' market for reps,” Ms. Papike said. “This year could be a hearkening back to the 42.5% days.”
And broker-dealers may be looking to spend more on recruiting right now, meet their goals and then pull back in the second half of the year, executives and recruiters said.
“There is a good possibility that adviser transition packages will be more attractive in the first half of the year and less competitive in the third and fourth quarter,” said Brad Fay, president of IBD Placement and Recruiting Services. “My advice to an adviser contemplating a move is to get engaged early this year.”
B-D executives could be distracted from recruiting in the second half of the year by a host of regulatory issues, he said. “As 2011 wears on, priorities may change and budgets can be re-deployed to other areas, such as ... compliance, client litigation, the SEC, Finra or the continued implementation of Dodd-Frank,” Mr. Fay said.
Along with higher recruiting expenses, company officials are finding that it's taking reps and advisers a lot longer to make the decision to move, said Bill Williams, executive vice president of Ameri-prise Financial Inc.'s franchise group. “In the past, it took three months for [reps and advisers] to make a decision” to change firms, he said. “Now it's more like six to nine months,” Mr. Williams said.
The context for 2010's down year was in large part due to the tremendous year independent broker-dealers experienced in recruiting in 2009, which was an aberration, many in the industry believe.
Some firms have been beefing up their recruiting staff to help find more advisers.
Wells Fargo Advisors Financial Network added six people to its recruiting team in 2010 and now has 18 people working in that area, said John Peluso, the network's CEO.
Cetera Financial Group increased its recruiting staff by 50% in 2010 and plans to increase it by another 50% in 2011, bringing its total head count to 25, said CEO Valerie Brown.
A broker-dealer network of three firms created last year after private-equity shop Lightyear Capital LLC acquired them from ING Groep NV, Cetera also plans to launch a marketing campaign that will focus on the individual broker-dealers, she said.
Executives and recruiters said opportunities to buy the assets of struggling, small broker-dealers will grow this year. The range of firms available is as small as $1 million in gross revenue to $100 million, executives and recruiters said. “We will see a continued consolidation in the independent space,” Mr. Morrissey said.
Many executives are glad to have last year behind them. “It doesn't seem like recruiting is going to be as easy this year as 2009, but it should be easier than 2010,” said Eric Schwartz, CEO of Cambridge Investment Research Inc.
E-mail Bruce Kelly at bkelly@investmentnews.com.
