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Recruits In The Driver's Seat

Recruiting in the independent broker/dealer business has reached a fever pitch. The signs are everywhere. Just take Raymond James, where the number of advisors recruited so far this year is already about 80 percent ahead of where it was last year. What's more, the number of prospects attending the firm's national conference in September was more than three times greater than the number attending the

Recruiting in the independent broker/dealer business has reached a fever pitch. The signs are everywhere. Just take Raymond James, where the number of advisors recruited so far this year is already about 80 percent ahead of where it was last year. What's more, the number of prospects attending the firm's national conference in September was more than three times greater than the number attending the firm's March conference, and more than double the number attending any previous conference, says Bill Van Law, senior vice president and national director of business development for the firm.

Then there's AIG Advisor Network, where recruiting success has been particularly good among new branch offices (or OSJs) this year, according to Joby Gruber, president of the firm. Through the first nine months of 2007, AIG's three b/ds — Royal Alliance Associates, AIG Financial Advisors and FSC Securities — have attracted $50 million in new production, he says. With a couple of acquisitions pending, that puts AIG on target to meet its goal of $75 million in revenue growth for the year, a 10 to 15 percent increase over last year, he says.

What's more, b/d executives say it's not just the number of recruits that is up this year; the quality of recruits has also improved. “While we are pleased by the numbers, we are more pleased that the quality of candidates is much higher than what we have experienced in the past,” Gruber says. One telling sign: The average production per advisor recruit has doubled in the past two years.


Despite all of their recruiting success, b/ds say the competition for so-called top producers has gotten far stiffer in the past two years. One thing working in advisors' favor is that the pool of top talent actually switching firms is relatively small — even smaller than the firms may think. According to a study conducted by Moss Adams and commissioned by Pershing, titled The Race For Top Talent, the number of advisors with production of $500,000 or more who will switch firms this year is in the hundreds. That's partly because there are just so few of them in the business. While nearly 80 percent of advisors on the independent side of the business generate less than $250,000 in production annually, 80 percent of firms' recruiting efforts focus on the other 10 to 20 percent.

Firms have responded to the pitched battle for talent with recruiting incentives like deferred compensation, transition financing, practice-management help, and for the first time ever, sign-on bonuses. Sign-on bonuses may be standard practice at the wirehouses, but they are a new tactic for independent firms. And although the bonuses offered on the independent side are just a fraction of those offered by the wirehouses, they are creeping up. The large insurance-backed independent firms tend to give advisors the most, somewhere in the range of 15 to 20 percent. Usually that money is offered in the form of a loan, which is forgivable over five or seven years as long as certain production goals are met.

The sign-on bonuses are something that the b/ds — not surprisingly — aren't too happy about. “I'm not excited about large payouts and forgivable loans because I think it sends the wrong message,” Gruber says. But AIG is not inflexible. The firm starts with a standard offering package, which includes a payout in the 90 percent range, a deferred compensation plan and group health insurance through its parent company. It tailors its offering — through value-added services such as marketing and coaching — to the needs of the OSJ or individual recruit.


MetLife tends toward the high side in terms of payout, offering up to 96 percent for top-tier groups, and will help with transition costs, but it too is wary of forgivable loans and other upfront incentives, Raines says. “It is very interesting to see reps take upfront money that locks them in for six or more years of production quotas, which is contradictory to the whole concept of independence,” he said. “Frankly, I question the value and impact of these deals.”

Sign-on bonuses are far smaller at non-insurance b/ds, which give the best producers more like 3 to 10 percent. The firms often refer to these bonuses as “transition financing,” because advisors use it to help pay the costs of getting started as independents, from account termination fees to office space, furniture and supplies.

RJFS offers advisors a payout of roughly 90 percent, which Van Law said is pretty much the average for independent b/ds. But on a case-by-case basis, it also will offer transition money, which now might be as much as 5 to 8 percent of an advisor's trailing 12-month revenue, he says.

While its upfront compensation package is pretty straightforward, RJFS is doing other things to stay competitive with the offerings of other independent firms. In August, the firm debuted another offering in its recruiting and retention arsenal: a wealth accumulation program. According to Van Law, this multi-tiered deferred compensation plan offers advisors an increasing level of retirement savings, starting at 1 percent for those with at least $450,000 in annual production, and up to 10 percent for those producing $3.5 million or more. “Combine that with a 90 percent payout on many products, and a top producer can get 100 percent,” he says.

But beyond upfront payments, advisors switching firms are looking for cutting-edge technology and reduced red tape. “They want a b/d who is on their side, and makes life easier from an administrative and operational standpoint,” says Metzger, adding that the availability of new services and tools is a big plus.

Chief among those services from a recruiting and retention perspective is practice management. Indeed, larger independents like RJFS, AIG and Linsco/Private Ledger began developing in-house practice-management programs about five years ago, and the popularity of those programs has since gained momentum. Today, most of the mid-range, and some of the smaller firms, see the necessity of such programs, and are starting to take practice management very seriously themselves.


What are independent b/ds looking for in a recruit? It varies somewhat from firm to firm. At the firm level, AIG looks for small, nimble shops with $3 million to $20 million in production that maybe lack the resources to keep growing. AIG can offer them compliance, advisory services and technology in exchange for a share of production. Hopefully, the recruit will also give AIG access to a service, technology, or process that can help AIG help its other advisors, says Gruber. Among individual advisor candidates, AIG looks for those that have a sense of entrepreneurship, and are open to succession planning.

RJFS looks for advisors with good compliance records and clean credit history, as well as long-term business vision, Van Law says. They also need to pass what CEO Dick Averitt calls the “mom” test: To wit, the recruiter needs to be able to say that he would allow that advisor to manage his own mother's money, Averitt explains. Now, that's a pretty tall order.

In any case, now is the time for advisors to consider a switch. B/ds often recruit heavily in the fall to make up for any shortfalls in production that might affect the firms' ability to meet their growth targets. “There typically is a lot of activity in the fourth quarter in terms of bringing on new recruits,” says Barry Metzger, CEO of brokersXpress, a small independent b/d started in 2004.

Greg Raines, director of national recruiting at MetLife, agrees, saying that the most movement occurs between August 15 and December 31, and conversations now are key to how the year will go.

Advisors tend to reevaluate their careers in the fall anyway, because it's a time when their firms ask them to commit for another year. Gruber notes that most advisors move not because they are wooed away by the offer of another firm, but because they are unhappy with their existing firms. “Most advisors are hesitant to make a move unless there is some kind of disruption or dissatisfaction,” he says.

Despite the feeding frenzy for new recruits, the biggest b/ds claim they're doing quite well with retention. At AIG, retention rates are in the 96 to 97 percent range. Gruber attributes that to strong relationships between advisors and home-office personnel, new services, and advice from financial experts at its parent company. RJFS, meanwhile, says its turnover rate for top advisors has never exceeded 2 percent. Nice numbers in an embattled environment.

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