The pandemic has weakened, recession has taken a back seat, advisors have eased up on the brakes and recruiters in the independent broker-dealer space are at the ready, or have already begun, to deliver the goods. All signs for record-pace advisor movement within the industry in the months ahead.

Rich Steinmeier, managing director and divisional president of business development at LPL Financial, said the firm saw record recruiting in the first quarter and continued to see strong movement after that. New client assets were $8.4 billion as of March 31, an 18% year-over-year jump, contributing to a trailing-12-month total of $36.2 billion, he says.

Amy Webber, president and CEO of Cambridge Investment Research, says that as of the first week in June, her company added $40 million in new financial professional revenue and she expects that number to grow to $57 million by the end of the month. “Our pipeline beyond that continues to be very strong. Something unexpected would have to happen for us not to hit $100 million in new revenues this year,” she says.

Andrew Daniels, managing principal of business development at Commonwealth Financial Network, says he expects Commonwealth to bring in about $8 million in new revenues in May. “Given all the external conditions, I am very happy with our ability to continue to attract and transition new advisors.”

Still, Daniels, Steinmeier, Webber and others say advisor recruiting hit the brakes in March and April. But some of those advisors who had pending transactions began coming back in May. All three are betting on a busy June, July, and August, with strong results.

The projected increased recruitment activity and movement of advisors among broker-dealers for the months ahead does not surprise Jeff Nash, a recruiting consultant and CEO of BridgeMark Strategies. Nash says he, too, has a bunch of prospects to move in June and July, especially breakaway brokers leaving wirehouses. He says that advisors usually change firms after a market downturn.

“I fully expect to see a very large breakaway contingent coming out of [Covid-19],” Nash says. “I mean I can go back and look at 20 years of recruiting, and when you see down markets and recessions, you see up markets of recruiting [of] wirehouse advisors.” He notes that the exodus of advisors from the wirehouses after recessions usually has to do with the companies’ belt-tightening.

“So, throughout Covid, the wirehouses have said very clearly, ‘We are not going to do any layoffs.’ Well, what if profits are down? What’s the next thing to do?” What they do to save money is lay off support staff and cut payout or add fees to the advisors or to their clients, Nash explains. Those measures drive advisors out of the companies, he says. “More wirehouse advisors leave after a recession more than any other time.”

The pandemic has also made infrastructure part of the sales pitch to advisors. “So, if you are at a Merrill Lynch, you think you need this big office and all this stuff. Well, now everybody is working remotely, and they are realizing how successful they can work remotely, and they are scratching their heads as it relates to commuting and, also, what their actual needs are.”

Advisors are also prompted to consider moving when their firms consolidate, notes Louis Diamond, executive vice president and senior consultant at Morristown, N.J., recruiting firm Diamond Consultants. He points to mergers such as those of Ladenburg Thalmann, which, along with its subsidiary Securities America (and its own subsidiaries) was merged into Advisor Group. In other significant deals, Warburg Pincus bought Kestra last summer, and Genstar acquired Cetera in September 2018.

Deals like these, Diamond says, mean some advisors will feel displaced and other firms can scoop them up. “Anytime there is dislocation or anything like this, it’s an action that these firms that are recruiting can capitalize on,” he says.

And that could already be playing out, as three teams within six weeks recently exited Ladenburg’s Securities America subsidiary for LPL and Commonwealth. Ironically, Securities America was probably the biggest beneficiary of National Planning Holdings reps who felt displaced after LPL acquired that firm in 2017.

Gregg Johnson, a Securities America veteran who in March was appointed to the newly created role of executive vice president of recruiting and revenue acquisition for all of Advisor Group, says the new entity is encouraged by the engagement of the advisors who were integrated in the Ladenburg deal. “It has been extremely positive. Those advisors recognize that the transition is going to be essentially seamless with minimal repapering, minimal disruption to their clients and practices.”

Advisor Group is set apart by its multi-custodial, multi-clearing and multi-brand model, he says, which helps advisors get scale and purchasing power, but keeps the intimacy.

Other independent broker-dealers have touted enhanced offerings to appeal to their advisors and meet the demands of prospective clients. Recruiters say one of the top draws is technology. “There has been so much innovation and improvement in the independent space that relates to technology, and a lot of it is in the RIA channel where advisors can pick and choose their own technologies,” Diamond says.

Nash says most independent B-Ds are trying to figure out how to work in the RIA universe. “They are trying to get there,” he says. “They just haven’t figured out how to be profitable.”

But more younger reps are opting to go RIA-only and forgo any commission business. Webber says her firm has been giving financial professionals the opportunities to work in a fee-only capacity for over 20 years. “This is not new for Cambridge. However, due to the current climate, interest is increasing, especially in our flexible, sophisticated, corporate RIA option. Many of our competitors are attempting to follow suit, and we are proud to be a market leader in this environment.”

She says firms that don’t figure out a way to embrace the advisory channel, either through a sophisticated corporate RIA option or a model that supports independent RIAs, are likely to see a significant growth decline.

At Raymond James, technology has been a strong focus and continues to attract advisors, says Jodi Perry, president of Raymond James Financial Services’ independent contractor division. She points out that they are fortunate to have multiple affiliation options and the benefit of having an employee model in Raymond James & Associates, which boasts all the products and services of a full-service broker-dealer. This model appeals to wirehouse brokers seeking more support. “So, if someone wants to affiliate with us as being an employee or if they want to be independent, or even if they are affiliating through an RIA channel, they can do that,” she says.

Daniels says Commonwealth’s 20-year history of building (rather than buying) an integrated technological solution for its advisors has been one of the driving forces in attracting advisors to the broker-dealer. During the pandemic, he says, the company’s technology “never missed a beat.”

LPL Financial, just in the last year, introduced several new technological capabilities and enhancements to its advisory platform, notes Steinmeier. Among them were the no-transaction-fee, exchange-traded fund network, a mobile app that advisors can customize to their practice, and the launch of a new account opening tool, which reduces the time it takes an advisor to open a new account from nine minutes to four minutes.

“You see a firm that doesn’t look the same as it does a year ago,” Steinmeier says. “It looks demonstrably better than it looked a year ago, and a year from now, it will look demonstrably better than it looks today.”

The IBDs have seen their souped-up technology put to the test during the pandemic, and with much success. This turmoil has required brokerages to offer virtual setups, the ability to go paperless, e-signatures and the ability to get in touch with homebound clients. It’s worked well enough that many companies say they are in no hurry to rush clients back to the office.

Still, cybersecurity remains an important area of focus, recruiters say, given the vulnerability of data, and the firms are taking steps to combat cyber criminals. Steinmeier says LPL has been making large investments to secure its data and network and has not had any problems. Perry points out that any third-party technology that comes through the Raymond James system is flagged to ensure it is up to the level of its sisters. And last summer, Advisor Group introduced the CyberGuard Program, a tool kit designed to protect advisors and clients from cyberattacks, Daniels says.

With the technology in place, once advisors began to settle in working from home and the initial shock of the pandemic wore off, it became business as usual for many independent advisors who were already used to having flexible work arrangements, Diamond says. Still, “I think the same motivators these advisors had, to look around, or to leave prior to the crisis, are still in place.”

LPL’s second-quarter recruiting numbers are not available, and Steinmeier declined to provide to-date recruited assets for the quarter. The company’s reported advisor head count stands at 16,763, up 299 from the fourth quarter of 2019 and up 574 year-over-year.

Steinmeier says the firm’s net promoters score, a gauge of client loyalty, also increased over the last 18 months. He and Advisor Group’s Johnson downplay the idea that money remains the big driver in motivating an advisor to join a firm. Johnson says the discussion with potential advisors usually centers around questions like “What can one of our B-Ds in Advisor Group do to help me grow my practice? What are you going to do to help me become more efficient?”

Tim Stinson, head of sales and wealth management at Cetera Financial Group, says his company offers financial incentives in the form of signing bonuses, forgivable loans and package access to discounted resources, but he also says it is more than the money that attracts advisors to the firm.

“At Cetera, we believe in people over numbers. We are here not only to grow assets, but to seed long-term value through the delivery of independent advice. That really resonates and motivates recruits because so many financial professionals are seeking a stronger team dynamic. We encourage all recruits to function like CEOs of their business where they assess core economic and valuation drivers such as transition assistance, payout, ticket charges, platform pricing and affiliation fees,” Stinson says.

But Nash and Diamond stand firm when saying that economics are the driving force in a lot of the decisions. “There are definitely advisors who don’t lead with the money,” Nash says, “but there is a significant amount of advisors who are making moves as a result of the money.”

He adds that a lot of advisors will scope out the marketplace to see what is out there—if there are firms with better technology, firms with better service that are doing things differently. Then on top of that they will consider the money. “Look, the technology is actually better, the service is better than mine and I can make all this money. And that makes a lot of people make changes to firms,” Nash says.

Diamond agrees. “The economics are definitely important, not just the up-front payment the broker-dealers [offer], but the ongoing fees.”

Facing Down Regulations
Independent broker-dealers have been anticipating the Securities and Exchange Commission’s Regulation Best Interest, which was set to take effect on June 30. Nash argues that, like the pandemic and the recession, Reg BI is going to increase advisor movement in the insurance B-D space. He points to the many insurers such as John Hancock and Allianz that sold their independent broker-dealers because they did not want to deal with the product lines.

“So we start looking at little things [with] Reg BI,” Nash says. “If people don’t have a Series 65 license, they can’t even call themselves an advisor. So there are some real clear distinctions with Reg BI in the insurance products versus the distribution side, which is the B-D side.”

And while some IBDs are taking a wait-and-see approach, others like Advisor Group have been proactively educating their clients. Johnson says regular communication has been going out to advisors going back a few months, and most recently, the company did a 21-city executive town hall series for advisors on Reg BI preparedness. “And now that we are really close, we are doing webinars, educational sessions,” he says.

Steinmeier says LPL is fully prepared to meet the requirements of Reg BI. “Our advisors will have access to all of the training and capabilities they need to be compliant. We are full steam ahead and ready.”

Advisors also are looking for stability, says Jodie Papike, a partner with advisory recruiting firm Cross-Search. She points out that a lot of firms have been undergoing changes, whether it is consolidating their back offices, reducing back-office staff or changing the structure of their business.

“Through tough times comes change, typically, and change doesn’t always mean good things for advisors, or it means they want to know what that change is going to look like,” she says. “They want to know who owns the firm that they are considering and is there any potential for that structure changing down the line. They want a stable environment where they can predict that they can be with this firm for the rest of their career.”

Papike says another common theme among advisors is that they are looking for help in putting together a succession plan. She points out that the average age of the advisor population continues to creep up. A report by Cerulli Associates noted that at the end of 2017, the average age of U.S. financial advisors was 52. “Advisors are looking at their environment and saying, ‘I don’t have someone to take over my business. I am looking toward my firm to help me put a succession plan in place,’” Papike says.

Succession planning, Diamond agrees, is one of the most pressing issues facing the industry. He argues that even for the best IBDs, once you get large enough “there may not be anyone who is large enough or sophisticated enough to buy you,” he says.

Because of the limited supply of those who can buy them, advisors then either sacrifice the quality of their succession planning or sacrifice the amount of money they can get for their business. Johnson says Securities America was proactive in providing access to information and consulting for advisors preparing to sell their businesses. When he went to Advisor Group, he found that it too had several resources and a program in place to help with succession and continuity planning.

In 2017, Advisor Group launched My Succession Plan, a platform that supports succession planning-based M&A transactions across the company. It also provides a sophisticated business valuation model coupled with expert consultants to assist independent advisors with this critical aspect of their business planning.

Steinmeier says LPL ensures that there are capital solutions available to help finance both the sellers and buyers of firms. LPL also provides valuation services to advisors so they don’t have to go out and pay third parties for an appraisal, he says.

Daniels says it is concerning that not enough younger people are joining the wealth management industry to fill the seats of aging advisors. “It’s a concern for any firm like ours, and I think it’s a great concern for my kids. Who is going to be the wealth managers that they get to turn to and help them with their financial planning?”

Daniels says he is surprised that more of the younger generations are not considering being in the independent space. “I think these younger generations do have a greater sense of altruism and of wanting to impact their world,” he says.

Cetera’s Stinson notes that his company continues to attract next-gen advisors into the profession through its national internship program, which was changed to a virtual program because of the pandemic. The first cohort from February through April had 122 interns; half of them were virtual. Another session, which ends in June, has approximately 200 students, all virtual, he says.

The lack of diversity is also a pressing issue facing the industry, says Steinmeier. “The diversity of the clients that are served are not necessarily met by the diversity of the folks delivering the advice, and I don’t think that’s sustainable,” he says. “So there is a big need in the industry to make sure we are supporting more diverse individuals coming into and becoming financial advisors or recognizing that it is a noble profession.”

Steinmeier says LPL has a diversity and inclusion council that is building communities, trying to be more representative of the firm and making sure there is a voice for people of all backgrounds. The firm also has an independent advisor institute that it uses to train new advisors and helps them to obtain licenses, and it has an emphasis on bringing diverse talent into that program, he says.

Raymond James has been tackling diversity both from the corporate and advisor sides, says Perry. She says the company has a women’s interactive network group, a black financial network group and a pride network group for financial advisors. “So, we are looking at historically black universities when we are doing recruiting for financial advisors, and many of our independent business owners are bringing in interns from the various universities,” she says.

“I think the mindset in 2020 at Commonwealth and my peer firms,” says Daniels, “is we universally believe there is space and a need for greater diversity both in terms of gender and race. But I don’t think that will happen overnight, and I think it’s incumbent on all of us, for the strength of the industry, and because I think there is going to be even greater need down the road to support women and minorities with financial advice.”