The Surprising Truth About Small Firm Recruiting

New Study From BridgeMark Indicates Small to Medium-Sized IBDs Have Recruiting Advantage

While many assume that large firms have significant recruiting advantages, which is true to an extent, a recent study from BridgeMark Strategies demonstrates that assumptions about larger firms showing more recruiting success may miss the mark.

According to BridgeMark’s study based on a survey of proprietary data from 2021, 82% of advisors decided to affiliate with smaller firms or smaller groups within larger firms. 

The study indicates that advisors chose to affiliate with up to 30 different firms across varying business models ranging from large broker-dealers to RIAs and boutique independent broker-dealers, and when they did select a larger firm, advisors typically gravitated to a smaller organization within that firm, such as an OSJ or hybrid enterprise.

Commenting on the drivers behind this trend, Jeff Nash, Co-Founder and CEO of BridgeMark, stated, “The collective camaraderie, shared ideas and added support seem to be driving these affiliations, and while advisors appreciate the support of the larger firm, they tend to be concerned about being lost in the crowd.”

Affiliating With Megafirms Through OSJs and Hybrids

According to Soliman Popal, Senior Vice President, Business Development at independent wealth management firm and hybrid RIA group Financial Advocates, which affiliates with LPL Financial, advisors show increased interest in joining hybrid RIA groups and OSJs affiliated with large firms.

Popal points out the advantages of affiliation with large firms, which “provide depth and breadth when seeking investment options, removing a conflict of interest. Advisors can save 10 to 25% by joining a larger firm compared to a smaller broker-dealer that is not self-clearing.”

At the same time, Popal describes the advantages of a small firm: “The relationship between an OSJ and an advisor can build strong bonds, allowing for personalized solutions based on a deeper understanding of the advisor’s business.”

Merging the benefits of a large enterprise with the positives of a smaller one, Popal states that when “an advisor marries a large independent broker-dealer with an organization like Financial Advocates, the efficiencies become customized with tailored solutions based on needs and goals.”

Affiliating With Smaller Enterprises

Others question whether the advantages of joining a megafirm through a smaller firm can outweigh direct access to the top leaders of broker-dealers and corporate RIA firms. 

According to Michael Nessim, CEO, President and Managing Partner of Kingswood U.S., “No one likes to be ignored, and if a financial advisor isn’t among the top five to ten percent of producers within a megafirm, it is virtually impossible to get the support needed to expand a business or address a problem.”

Nessim contrasts this large firm disadvantage with the strengths of directly affiliating with a small firm, explaining that “[s]maller broker-dealers and RIAs provide a platform not only for more strategic growth, but for the advisor to thrive within a more attentive and supportive environment. It allows advisors to be seen and heard, a fundamental human desire.”

Nonetheless, Nessim allows that in certain situations affiliation with large firms through smaller organizations may be optimal, stating, “If a professional wants to work with the business development team and have a hand in regulatory strategy, affiliating with a smaller broker-dealer or RIA would be ideal, but if the advisor is only looking for more personalized support an OSJ might be a better fit.”

Service and Access Outweigh Financial Incentives

Regardless of differences of opinion over which model works best, the general trend of the moment is clear – with unabated market volatility and the continually increasing complexities of operating an independent financial advisory business, advisors now prioritize personalized service and access to the real decision makers of their affiliated firms rather than simply partnering with megafirms that offer the highest upfront financial incentives. 

Remarking on the trend his firm discovered, Nash concluded, “The value of aligning with a group that can offer some scale and help them assimilate more quickly into the new firm seems to provide significant upside value for advisors.”

Julius Buchanan, Senior Contributing Editor at Wealth Solutions Report, can be reached at jbuchanan@wealthsolutionsreport.com