Registered investment adviser and independent-contractor-broker-dealer firms looking to attract high-producing wirehouse brokers are increasingly seeking to differentiate themselves in a crowded and competitive marketplace.
"It's a major challenge," said John Burns, chief executive officer of Burns Advisory Group LLC, a wealth management firm in Oklahoma City. "There's a very strong demand for top talent."
"As far as the top producers go, it's a seller's market for sure," according to Mark Ryan, a financial services recruiter and senior vice president for Littleton, Colo.-based Snelling Professional Services Inc. "They can pick and choose where to go."
About 1,500 wirehouse brokers leave their firms and choose independence each year, according to "Going Independent," a recent report that Seattle-based Moss Adams LLP prepared for Charles Schwab & Co. Inc. of San Francisco. Approximately 80% of them, the report estimates, sign on with independent broker-dealers, while the remainder join registered investment advisers.
Charles "Chip" Roame, managing principal of Tiburon (Calif.) Strategic Advisors LLC, estimates that only about 10% of the breakaway brokers choose the RIA route.
"The competition to get high-quality people is extremely tough," confirmed Jeff Krueg, chief executive officer of Scottsdale-based WealthTrust Arizona LLC, "and even more so because they're less likely to move unless there's an issue with their company."
Partnering with Colby & Thornes PLLC, a prominent estate-planning law firm in Scottsdale, is one way WealthTrust has sought to differentiate itself, said Paul Ahern, the advisory firm's senior vice president of planning.
"An opportunity to work with a firm of that stature and their clients is very appealing to advisers," he said, adding that WealthTrust also employs a public relations firm to give its advisers national media exposure on such outlets as CNBC and the Wall Street Journal.
"It's an opportunity they wouldn't have gotten at a big wirehouse, where they were just another cog in the wheel," he said. "Here they can stand out."
One of the drawing cards at Cambridge Investment Research is "a family-type feeling," said Eric Schwartz, president and chief executive of the Fairfield, Iowa-based independent broker-dealer.
"The culture here is different," he said. "It's a place where you can have personal relationships that aren't possible at some of the larger firms. You can also call your own shots. The question you really have to answer for people is, do you have something that will work for them for 15 to 20 years?"
Peter Grifo, vice president for national recruiting at Syracuse, N.Y.-based Cadaret, Grant & Co. Inc., agreed that a firm's culture is often decisive when it comes to attracting wirehouse producers.
"It's really the million-dollar question," he said. "Look, we all have good technology, especially these days. It gets down to intangibles. We want people to visit us here in Syracuse to get a feel for who we really are. We say, 'Come on out, take a test drive.' We think they'll like what they see."
An advisory firm's culture, environment, back-office support and succession-planning policy are "at the top of the list" for advisers looking for a new firm, according to James Crowley, a managing director with Pershing LLC of Jersey City, N.J.
Too few broker-dealer prospects — and too many advisory firms chasing after them — led Pershing to launch its TalentConnect recruiting and retention program last month, Mr. Crowley said.
"Firms have been requesting more one-on-one sessions with our senior executives" to learn how to attract top wirehouse brokers, Mr. Crowley said, "and that's part of the program, along with workshops, guidebooks and online resources. We're trying to make the findings in 'The Race for Top Talent' actionable."
He was referring to a report compiled by Moss Adams LLP
(Investment News, Sept. 17) that discussed the shortage of high-level advisers.
Nearly everyone in the advisory business agrees that an opportunity for equity participation and being one's own boss are major inducements for wirehouse brokers to go independent. But industry sources are divided on the role of compensation and payouts when making the initial jump.
The fact that independent broker-dealers are now making upfront payments to wirehouse refugees also has become a key factor in the recruiting wars, as have new transition programs run by custodians to help advisory firms bring in new talent, according to Mr. Roame. He believes that some top brokers leaving the wirehouses are willing to trade money for a more relaxed lifestyle.
While Mr. Ryan, the recruiter, agrees that lifestyle is an important consideration, he said that brokers he has worked with "want at least as good a payout as they're getting now."
Brokers "do have the opportunity to make more money," said Mr. Burns. "But money is not the only issue when people leave. They are also looking for a good strategic partner, and an opportunity to serve their client better."
Brokers who base their decision to go with an independent on payouts or upfront checks are making a mistake, said Mr. Schwartz.
"Ideally, they should be looking at a 10- to 20-year time span, and it should be the last move that they want to make. But if they are basing it on those payments, it's like saying you want a long-term relationship, but setting yourself up for a divorce."
What's more, Mr. Schwartz added, not every successful broker should consider leaving a wirehouse.
"Everything is done for you in a wirehouse," he said. "It's the difference between being a salesperson and an entrepreneur, and a salesperson may not be ready to go independent."
One person who agreed was Paul Hynes, a 20-year veteran of New York-based Smith Barney, a unit of New York-based
Citigroup Global Markets Inc., who left to join Burns Advisory Group as a principal in San Diego last May.
"You have to want to be captain of your own ship, but still be part of a bigger enterprise," he said. "I wanted to be a fee-only RIA, and I was attracted to Burns' hub-and-spoke model. I thought it was a better growth strategy for what I wanted to do."
Charles Paikert can be reached at [email protected].
