Large wealth management firms competing for talented financial advisors have a multitude of factors to consider when recruiting them to existing branches. As countless deals this year demonstrate, in-branch recruiting occurs in various forms.
This month Hightower facilitated the sub-acquisition of the Princeton, New Jersey-based firm Optimal Portfolio by Fairport Wealth, a Hightower business based in Cleveland. Also in October, Ameriprise Financial recruited a single advisor, Pamela Souders, to a pre-existing independent practice in Columbus, Nebraska, led by Sam Hogeland.
And in June, Edward Jones announced that it would break from its traditional model of allowing only one advisor and one branch administrator per office, allowing all of its advisors to share a branch office with another advisor by the end of 2023.
Not only must firms assess the pros and cons of in-branch recruiting growth strategies, firms must figure out how to implement them effectively among independent branches and ensemble teams, as well as the different priorities of W-2 employees or 1099 affiliated advisors. WSR spoke with industry experts for their perspective on how best to meet the challenge.
Rowing In The Same Direction
“A firm taking an in-branch recruiting growth strategy aligns itself with the advisors and their branches,” says Tim Boostrom, Managing Director of Business Development at Stifel Independent Advisors. “We are rowing the boat in the same direction – an outstanding opportunity for the relationship and for advisor retention.”
Approximately half of the total practices at the St. Louis-based independent broker-dealer are either branches or teams. Stifel Independent Advisors plans to add at least 12 flagship offices by the end of the year, each producing $1 million to $6 million in trailing 12-month revenue.
Firms can provide real value by teaching their advisors how to conduct in-branch recruiting and grow their business, according to Boostrom. He points out that it often is more efficient for a firm to serve fewer locations, and that creating bigger branches is a great idea for some firms but not necessarily all of them.
Stifel recruits individuals as well as teams of as many as three advisors to join a branch, with more than $750,000 in trailing 12 months production per advisor. Their books mostly consist of advisory business, and a smaller number of households.
In order to support advisors who join branches, Stifel’s transition team uses a step-by-step process to handle details prior to affiliation, and then sends a support crew onsite to move client accounts and train the staff on the systems, paperwork and operations. The goal is for new branch advisors to feel taken care of throughout the onboarding process.
“Advisors fall into two categories – they either have a clear vision of what they want to create, or they want to focus on their clients and their craft,” Boostrom says of the kind of independent financial advisor who is the best fit for recruitment into an existing branch.
“Visionary advisors build businesses, while the latter join them. Together, they create strong, vibrant teams. Advisors who join existing offices can be of any production size or business mix. The key is that they fit the culture of the office.”
Assessing Economics And Resources
For the advisors running these teams, an essential priority is determining whether in-branch recruiting would be the most profitable strategy, according to Jeff Nash, Chief Executive Officer and Co-Founder of Bridgemark Strategies, a Charlotte, North Carolina-based consultancy operating nationwide and focused on the wealth management space.
He argues that such leaders should weigh the appeal of getting overrides and potentially building a billion-dollar team against what recruits actually expect to gain from switching firms, then compare that with what the team otherwise might be able to generate through successful organic growth and buying books of business.
“Advisors considering this model often look at their former peers at wirehouses receiving 40% or less of payout, and think they can create a platform that offers a 55% or 60% payout that everyone will flock to for a big raise,” Nash says.
He warns that although firms can make that pitch, potential recruits may ask why they should join if they can achieve a 90% payout on their own or join a super OSJ with a payout exceeding 60% while receiving portfolio management, user-friendly technology, benefits, coaching and other ongoing support services.
“The tuck-in space can be very profitable, but it too is very crowded among competitors,” Nash says. “It’s not just about the economics when making a decision. It’s also about what resources are provided.”
Meeting Advisors Where They Are
At Prudential Advisors, resources for in-branch recruits include being able to implement a business model of their choice, a product agnostic platform with full compensation and benefits paid on all products, and a leads program. Statutory employees are eligible for insurance and retirement benefits, and the firm recently introduced a 1099 model for advisors who prefer a payout instead of benefits.
“By creating a local focus, branch – or firm as we call them – management can leverage their strengths, recruit specific needs or desires and shape the firm the way they think will be most successful,” says Terri Kinsella, Vice President, Prudential Advisors. “We’ve found great success with teams joining our firms or individuals joining existing teams. In fact, teams reported 64% more in revenue than their solo peers.”
The firm has approximately 3,000 financial advisors in 28 offices, each with roughly 100 advisors who either use the Prudential brand or lead with a DBA. Prudential’s advisors provide holistic advice through a mix of investments, guaranteed income and protection along with fee-income from planning and other activities.
A major part of the firm’s in-branch recruiting strategy is to help teams that are looking to plug into collaborative cultures or find new opportunities to team up with other professionals to better serve clients. Another part of the strategy is to attract the proper talent to teams in geographies where Prudential is underrepresented.
The firm’s ideal advisor is one who has an entrepreneurial mindset, engages in a holistic planning approach, has assets under management of at least $10 million and wants to achieve growth, according to Kinsella.
“Local recruiting makes sense whether it’s a statutory employee or 1099 advisor. When we meet advisors where they are, we experience stronger recruitment of top talent,” Kinsella says. “Existing advisors and teams can identify their goals and needs and get directly involved in the recruiting process to ensure alignment and complementary attributes that add to the team’s success.”
Overcoming Compliance Risks
Besides balancing the pros and cons of in-branch recruiting in terms of economics and resources, firms also must overcome compliance risks when bringing on advisors. And branch examinations are becoming more complex for firms, branch office leaders and teams, according to Mitch Avnet, Founder & Managing Partner of Compliance Risk Concepts (CRC), a national compliance consultancy.
He cautions that while in-branch recruiting might seem to be the perfect “win-win” solution for the firm, the branch and lower-producing advisors, all too often firms conduct insufficient due diligence on the recruit’s business or fail to provide smaller advisor recruits with the same comprehensive compliance and regulatory support that larger producers enjoy. Routine compliance branch examinations could uncover these omissions and trigger costly remedies.
Avnet suggests that firms and their branches should make sure to understand all the specific compliance and regulatory ramifications of recruiting W-2 employee and 1099 affiliated advisors, as well as of engaging in fee-based and commission-based business.
“Compliance considerations should inform the strategic decision-making that starts with recruiting strategy and moves outward from there across all other aspects of the recruiting, transitions and onboarding process,” Avnet says. “Successful independent branches or large offices affiliated with independent wealth management firms are increasingly exploring opportunities to grow on a multi-channel basis.”
What’s the Trade-Off?
Branches generally have greater control over W-2 employees and can negotiate lower payout percentages with them. In theory, the branch or office is providing all the infrastructure and back-office support. So, from a regulatory standpoint, more control equals less risk, which can make W-2 employees preferable for the branch.
Yet 1099 affiliation is growing much faster than the W-2 channel, because it can give reasonably successful advisors greater day-to-day freedom and the ability to negotiate higher payout percentages, with the tradeoff of being responsible for more of their own technology and administrative tasks.
“Independent branches or large offices will need to figure out whether they go for greater control and relatively slower growth with W-2 employee advisors, or less control and relatively stronger recruiting growth opportunities within the independent channel,” Avnet says.
Chris Latham, Deputy Managing Editor at Wealth Solutions Report, can be reached at firstname.lastname@example.org