Editor’s Note: This is Part 2 of a two-part series that analyzes advisor hiring, retention and defections at wirehouses. See Part 1, examining reasons wirehouse advisors jump, here.
As advisors walk away from wirehouses, independent broker-dealers have been welcoming them in.
“The move to independence continues to gain steam because it’s no longer mysterious,” says Mark Elzweig, president of the New York-based recruiting firm that bears his name. “Everyone knows advisors who have gone independent and are thriving, so it’s a very real option."
IBDs such as LPL Financial, Raymond James and Ameriprise Financial, in particular, have been successful in attracting wirehouse breakaways, says Louis Diamond, executive vice president and senior consultant at Diamond Consultants.
What’s the appeal?
Higher payouts are the leading factor drawing advisors to the IBD channel, according to data from a Cerulli Associates survey.
The Boston-based consulting and research shop collects advisor data on an ongoing basis and surveyed nearly 2,000 advisors across channels in 2019.
While nearly 60% cited compensation, the ability to build financial value in an independent business (cited by 56%) and greater autonomy (cited by 51%) also ranked high among the reasons given for advisors’ moves to independence. (Story continues below chart.)
Lucrative transition packages can also sway advisors’ decisions about where to move, recruiters say.
Jodie Papike, president of recruiting firm Cross-Search, says that led to “really strong winners” in advisor recruitment last year at the expense of “firms that couldn’t compete.”
John Henschen of Minneapolis-based recruitment firm Henschen & Associates says IBDs typically offer transition loans or notes up to 40% of trailing 12-month metrics. But to get such offers, the advisor’s book “increasingly needs to be in brokerage accounts or proprietary platforms to get the higher numbers,” which are tied to the revenue stream of the firm.
Firms have tempered some deals they have offered this year, Papike says. But they are still paying top dollar to woo FAs.
LPL’s managing director and divisional president of business development Rich Steinmeier says that the Rock Hill, S.C.-based firm will remain “aggressive in the marketplace,” but noted that the transition deals it offers are not uniformly set and also vary in duration.
Manish Dave, senior vice president of business development at Ameriprise, says the firm feels “really good” about its transition package stance. “We pay very aggressively to make sure we’re competing for top talent.”
More affiliation options
IBDs are also increasingly banking on offering an array of affiliation options with varying degrees of independence to bolster recruitment.
Last year, LPL launched a premium RIA segment and acquired Allen & Company in a bid to offer an employee RIA model. The firm is also considering debuting a third fee-only RIA affiliation model this year.
Raymond James also said last year it plans to come up with a model for advisors who want to drop their Finra registrations but still operate under the firm’s corporate RIA.
According to Papike, such offerings typically start off as retention strategies. But as they gain traction, such programs become “more attractive for people to actually join you.”
Diamond describes such strategies this way: “If you can be more things to more people, you have a better chance at winning.”
In fact, executives at both Ameriprise and LPL say that they are pulling new recruits not only from wires, but from other IBDs. Steinmeier says LPL’s success among other IBDs “strengthened materially” in 2019. At Ameriprise, 20% to 25% of the firm’s 2019 recruits came from other independents.
Firms like Commonwealth Financial likewise have gotten flexible with affiliation models. The firm, which has home office hubs in Waltham, Mass. and San Diego, has a model that helps FAs who drop their Finra registration transition from broker-dealers to fee-only advisors, says managing principal for business development Andrew Daniels.
Often what prevents advisors from going fee-based is that they still have a significant chunk of assets in “transactional business or trail business that they’re not ready to give up,” he says.
The program aims to address that and position them for the future, he says. In addition, the firm this week announced that it had hired Fidelity veteran Matt Chisholm to a newly-minted role leading RIA services and practice management.
Commonwealth noted that about $7.6 billion of its nearly $201 billion in total account assets sits with fee-only advisors.
“I think the most fertile ground out there, certainly for Commonwealth, is the segment of advisors who have [a] vision [of] themselves as fee-only in the future, but are not yet prepared to make that shift,” Daniels says.
Do you have a news tip you’d like to share with FA-IQ? Email us at email@example.com.