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In an aggressive recruiting environment, with ridiculously high sign-on bonuses flying left and right, it's hard to keep financial advisors from getting the itch to defect.

In an aggressive recruiting environment, with ridiculously high sign-on bonuses flying left and right, it's hard to keep financial advisors from getting the itch to defect. After all, grousing about payout is like a reflex for most reps.

But a new research report from J.D. Power & Associates shows that the almighty dollar is not the primary reason why advisors decamp. In fact, the report shows that there's little or no correlation between compensation and advisor satisfaction. In other words, the firms that have the highest number of satisfied advisors aren't necessarily the ones with the highest-paid advisors.

Only 9 percent of advisors surveyed for the 2007 Financial Advisor Satisfaction Survey said that compensation was the primary reason they left their previous firm. Most of the advisors surveyed had other more qualitative reasons for moving on: better career opportunity (15 percent), a merger/acquisition or spin-off (9 percent), better products and services elsewhere (7 percent), independence/ownership (7 percent), management (7 percent), a more reputable firm (6 percent), better support/ resources (6 percent) and work environment (5 percent).

“While payout and benefits are important, advisors related that compensation is still less important than efficient process as defined by overall support (technology, sales and compliance) and people (co-workers, supervisors and back-office support),” concludes the J.D. Power report.

Edward Jones and LPL took top honors for keeping advisors happy, according to the survey. The vast majority of advisors at these firms — 86 percent and 80 percent, respectively — said they are more likely to stick around over the next year. Next on the list: A.G. Edwards, with 72 percent of reps planning on staying, then Merrill with 66 percent. At the other wirehouse firms, that number was closer to half. When asked which firms they would likely switch to if operations at their current firm ceased tomorrow, advisor responses were all over the map. Still, LPL was the clear leader with 9 percent of respondents choosing the independent b/d giant. A.G. Edwards and Goldman Sachs followed with 6 percent of respondents, and Edward Jones with 5 percent.

So why isn't compensation a big deal when it comes to switching firms? “The compensation structure is just not that different from one firm to the other,” says Andre Cappon, president of consulting firm CBM Group. “It's very hard to get a guy to disrupt his life to move from Firm A to Firm B for a small amount of compensation. It's never going to be a giant amount. And even if he jumps to an LPL for an 85 percent payout, he probably will not bring all of his clients.”

Industry experts say that what really drives advisors to jump is friction with a supervisor. “In the end it's whether they're very frustrated with the firm and especially with their branch office manager,” Cappon says. “The reason a broker leaves is that he's pissed off at the branch manager or the branch manager changed and he no longer has the same relationship.” That can certainly be seen in a series of arbitration cases that have been filed by reps against their firms in recent years, where reps have claimed that managers exacted personal vendettas against them. Of course, this kind of thing usually happens after a broker has left a particular firm.

It's All About The Help

Not surprisingly, the survey also showed that advisor dissatisfaction spikes when the problems they encounter in their day-to-day routines go unresolved. It may seem like an obvious point, but for every problem advisors faced that was not quickly resolved, their satisfaction with the firm dropped off.

LPL and Edward Jones fared the best when it came to overall problem resolution, including their response time. After that, A.G. Edwards and Raymond James placed third and fourth, respectively, while Ameriprise rounded out the top five. Merrill took sixth place, but managed to outpace all of its wirehouse counterparts. When asked to rank the most serious problems they encountered, 34 percent of advisors cited account paperwork and transfer errors, 13 percent said back-office support and training and only 10 percent said compensation.

In overall advisor satisfaction rankings Edward Jones scored the highest, followed by LPL, A.G. Edwards, Raymond James and Merrill Lynch. Edward Jones, a perennial winner in Registered Rep.'s Broker Report Cards, says its annual turnover rate through March 2007 was 11.7 percent, down from 13.4 percent in the year ended March 2006. The firm, which has an army of 9,620 advisors, has also experienced a 34 percent decline in defections to competitors in the first three months of the year.

“Business is good,” Edward Jones managing partner Jim Weddle says. It helps that the firm completed “the biggest limited partnership in history” just last year, and is overhauling its technology and communications systems. The firm has also improved its incentive program with extended health benefits, new milepost bonuses for newer FAs and a travel program for advisors who reach certain production levels. “Apparently our folks don't think the grass is greener elsewhere,” Weddle says. “You can be paid an awful lot and still be in an absolutely caustic culture.”

LPL says one of the reasons its satisfaction rate is so high is because it focuses on providing its affiliated reps with fast and efficient customer service. “Ninety-two percent of their problems are resolved on the first call,” says Bill Dwyer, president of Independent Advisor Services at LPL. For the first quarter of 2007, LPL had a 91 percent annualized retention rate, up from 90 percent in 2005. Its retention of assets is even higher, at 98 percent. (See page 39 for more on LPL.)

For firms, retaining talent is obviously crucial to profitability. The potential loss of assets is probably the biggest concern for most firms when advisors depart, and defections can sometimes end in nasty arbitration battles. According to the survey, about $8 million in assets is at stake with each departure. And that's no pittance.

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