Recruiting is all in the family for Jodie Papike

She started as an intern at her father's recruiting firm, and now, more than two decades later, Jodie Papike is the boss of the family business, Cross-Search, with the title managing partner and CEO.

Her father, Larry, was a pioneer in the recruiting of independent reps and advisors for broker-dealers, called independent because they work as independent contractors rather than employees. That was the dominant broker-dealer business model in 1989 when Larry Papike started the firm after his time owning a broker-dealer was cut short due to the limited partnership debacle of the 1980s.

But thanks to the likes of Todd Robinson, who owned what was to become LPL Financial Holdings Inc. and Tom James, whose father started Raymond James Financial Inc., the independent contractor brokerage business has thrived in the past 30 years, and now Wall Street and private equity managers are investing heavily in the wealth management industry, attracted by the steady cash flow generated by financial advisors.

With Cross-Search based in San Diego, the Papike family has worked with thousands of financial advisors looking for a broker-dealer that's a better fit for their business, and can potentially offer a recruiting bonus as well.

InvestmentNews recently interviewed Jodie Papike for an episode of the InvestmentNews Podcast, and here are some of her thoughts on the recruiting industry in 2024. Big firms, LPL Financial, Raymond James, Cambridge Investment Research, are leading the numbers of net new hires of financial advisors, according to Wolfe Research.

"Over this past year, recruiting and hiring financial advisors has been pretty consistent for a lot of firms," Papike said. "But what I'm continuing to see is it's the story of the haves and the have nots."

"That means the firms like LPL, like Cambridge, like Commonwealth, the bigger firms in the industry, they've really been able to up their offerings, and that includes everything from additional technology offerings to succession planning programs to transition assistance for an advisor to move over to the new firm," she said. "The smaller firms, and also a lot of the mid-sized firms, are having a really difficult time competing."

An industry rule of thumb defines a small broker-dealer as a firm with 100 financial advisors or less and a mid-sized firm as 500 or less.

"I have small firm roots, just look at my dad, who owned a small broker-dealer, so I really see value in that type of firm," Papike said.

"If I were to go back even 10 years, maybe even a little bit less, that bonus money or transition assistance wasn't on the table when an advisor considered making a move," she said. "There were a handful of firms that were offering some money up front to move, but it really wasn't the norm. And we've seen over the last five to 10 years that number that's the money being offered to advisors has just skyrocketed. And there's a lot of reasons why that's happening, but it's a trend that's making it easier for the big firms and very difficult for the small firms to compete."

"Broker-dealers are increasing the focus on the RIA or advisory business, and the predictability of that revenue stream that caught the attention of private equity firms," she said. "And as we've had more and more private equity capital come into the industry, it's only increased the demand for advisors, and it's been good for advisors that want to capitalize their businesses and they want to take some money off the table and semi monetize their business to move."

"But it's created difficulty within the industry, because a private equity firm is going to look at profitability in a much longer time frame, say of five to eight years," she said. "With a smaller firm that's privately held, they can't operate that many years, pay all their expenses and not turn a profit."