Independent broker-dealer recruiting hits a wall

Competition from custodians and good market performance are keeping more brokers at their firms

Apr 26, 2015 @ 12:01 am

By Mason Braswell

After a fruitful 2014, recruiting at independent broker-dealers has hit a wall, according to industry recruiters and executives at those firms.

Increasing competition from fee-only custodians, a bull market in stocks and better succession plans are all frustrating firms eager to add to their ranks, recruiters say.

Independent broker-dealers recruited only $426 million from three teams in the first quarter this year, according to announcements from about 20 independent-broker dealers tracked by InvestmentNews' Advisers on the Move database. That compares with $1.23 billion and five teams recruited by independent firms in the year-ago quarter.

(Don't miss: Our full Top Independent Broker-Dealers of 2015 special report)

“Last year was a really good year for a lot of major independent broker-dealers, with a lot of change in the marketplace that spurred some movement,” said Jodie Papike, executive vice president at Cross-Search, a third-party recruiting firm focused on independent advisers. “Without a lot of negativity [this year], firms have sort of stalled a little bit in recruiting.”

Recruiters debated whether the issues holding back recruiting will be short-lived or signal a long-term drought.

Without a lot of negativity [this year], firms have sort of stalled a little bit in recruiting.— Jodie Papike,  executive vice president at Cross-Search

The continuing strength of the market is helping to satisfy advisers who otherwise might have been looking for a move but that could change, especially if the industry undergoes major consolidation in the year ahead, Ms. Papike said.

“Whenever markets are good and clients are happy, the pain points advisers tend to feel lessen a bit,” she said. “That can change very quickly if there continues to be any kind of consolidation or changes taking place at the big firms.”

(More: Biggest IBDs enjoy double-digit revenue growth in 2014)

Some changes that were expected to produce movement haven't been the catalysts recruiters were hoping for. The ongoing expiration of retention deals given to wirehouse advisers during the major consolidation in 2008 and 2009, for example, has not translated into more deals for the independent channel, Ms. Papike said.

Moreover, some large teams that are going independent are opting for the registered investment adviser model. The large custodians have become a more serious force in the marketplace, according to Eric Schwartz, chief executive of Cambridge Investment Research Inc.

“There's competition from fee-only custodians, plus fewer reps willing to move,” he noted.

And while recruiters were eager to see what would happen after the major acquisition last year of Cetera Financial Group Inc. by RCS Capital Corp., there hasn't been any major exodus from the firm, according to John Rooney, managing principal at Commonwealth Financial Network.

“We're all waiting to see what happens with the Cetera group of broker-dealers,” he said. “We've seen that our most successful inroads are through companies that are experiencing significant shifts in their business models or their ownership structure or organization.”


Mr. Rooney described recruiting for his firm as steady but “off a little,” given a lack of “trigger” events.

The mismatch of supply and demand is putting pressure on firms to up the ante with more lucrative recruiting deals, according to Mr. Schwartz.

“There are an unlimited number of [independent broker-dealers] wanting reps to join and a limited supply of those reps,” he said. “Ten years ago, independent broker-dealers were paying 2% upfront money for a rep to move; now it's 10%, 20%, 30% or 40%.”

At the same time, independent broker-dealers are boosting their succession planning programs to hold onto baby-boomer brokers who otherwise might have made a move or sold their book to another firm when they retired, according to Daniel Schwamb, head of recruiting at NFP Advisor Services Group.

In some cases it's true, and in some cases it's not. But perception is everything.— Jon Henschen,  president of Henschen & Associates

“We've made a significant investment in our own succession plan department,” he said. “In many cases we finance the transaction or arrange the financing of the transaction” when an adviser is looking to sell his or her book.

Still, not all firms are seeing a downturn. And recruiters were hopeful that moves would pick back up. Mr. Rooney of Commonwealth said new issues were emerging that have made brokers more willing to consider switching firms.

Compliance at some firms, for instance, has become stricter about certain sales practices, including restricting the amounts of certain products that brokers can sell, such as triple-net-lease real estate investment trusts or business development companies, he explained.

In other cases, brokers at smaller firms have become more concerned about whether their firm could be acquired or whether it would survive a large arbitration award, according to Jon Henschen, president of Henschen & Associates.

“Reps are increasingly convinced that the current regulatory environment is difficult for smaller broker-dealers,” he said. “In some cases it's true, and in some cases it's not. But perception is everything.”

(More: Continue reading our full Top Independent Broker-Dealers of 2015 special report)


What do you think?

View comments

Upcoming event

Jul 09


Boston Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Most watched


Finding innovation in your firm

Adam Holt of AssetMap explains how advisers understand they need to grow, but great innovation may be lurking right under your nose.


Finding your edge from Tony Robbins

Guru Tony Robbins has helped a lot of people, but armed with his psychology Financial Advisor Josh Nelson has helped his practice soar.

Latest news & opinion

The growth of factor-based investing

Advisers are making decisions about clients' portfolios by using the same characteristics that govern factor-based ETFs.

Finra makes its list to target hundreds of rogue individuals

The regulator sees patterns in the behavior and disclosures of high-risk brokers.

LTC insurer offering co-pays to blunt soaring premium increases

John Hancock policyholders would get a discount on their premium in return for agreeing to pay a bigger portion of their claims in the future.

Goldman Sachs acquires United Capital

After a payday of $75 million or more, CEO Joe Duran plans to join Goldman in a senior position.

Private equity loves IBDs, but will that last?

Three big acquisitions in less than a year signals renewed life in the formerly beleaguered industry.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print