Jodie Papike Of Cross-Search Discusses How Advisors Seeking To Change Firms May Face A Double-Edged Sword Amid Consolidation, And How Advisors And Firms Can Both Succeed In Recruitment
Financial advisor transitions are among the biggest decisions one can make in this industry. When an advisor is determining how to switch firms, it may seem as though their whole world is in flux. That is where transition specialists can add real value for advisors.
To learn more about the process, we spoke with Jodie Papike, President of Cross-Search, an Encinitas, California-based advisor recruiting and executive placement firm operating nationwide for the wealth management space. Her father, Larry Papike, started the business in 1989. Jodie Papike’s brother and husband also work at the family business.
In this Q&A, she shares her insights on the evolution of Cross-Search, prevailing recruitment and M&A market conditions for advisors, and best practices for how advisors and firms respectively can succeed in their differing recruitment goals.
WSR: Why was Cross-Search started, how has it evolved over the years and what is your role?
Papike: In the early 1980s, my father started Sentra Securities, an independent broker-dealer, which was acquired by Home Life Insurance a few years later. While running Sentra, he spent a lot of time recruiting financial advisors. This was back before the rise of RIAs, when no recruiting firms focused on the independent wealth management space. That experience showed my father the inefficiencies of the recruitment process.
So he initially started Cross-Search to become an expert consultant for advisors who were making transitions in that environment. He helped advisors understand what was not working at their current firm and determine what they wanted out of their next firm, pointed them in the right direction and saved them time in the process. We largely do the same things today that we did back then, although Cross-Search has evolved a bit.
We now work with advisors in all forms of independence, with well over 100 different broker-dealer and RIA relationships. Advisors come to us when they are either already independent or want to become independent. We help them decide whether they should go to a broker-dealer, join an RIA, start their own RIA or operate a hybrid business model. When someone wants to start their own RIA, we also can help guide them to the right custodian that fits their needs.
Personally, I have been working at Cross-Search for 25 years. I started as a sophomore in college and spent a lot of time learning everything I could about the business. After about five years, I started working with advisors in tandem with my father. Slowly, I then began assuming responsibility for various functions across the firm. About two years ago, my father retired after teaching me everything he could. I now run Cross-Search and interact daily with advisors.
WSR: What are the major trends you’re seeing in financial advisor recruitment and M&A so far in 2023, and what are the driving factors behind them?
Papike: I’m thrilled to report that advisor recruitment is quite strong this year. We see little impact from the broader economic and financial market turbulence caused by rising inflation and interest rates. Some of the other major trends have to do with how competitive the landscape has gotten in recruiting, and in order to explain that we have to look at M&A activity.
Part of the reason recruiting has gotten so competitive is the money advisors are offered to make a move, and a lot of that has to do with the fact that many firms now have private equity ownership. This means firms have deeper pockets than they ever have before, so we’re seeing really large transition bonuses for advisors who want to make a move. Before the surge in PE ownership, a broker-dealer that gave an advisor a 90%-plus payout would not have much of a spread left over to also give that advisor a meaningful upfront bonus.
Times have changed, bringing not only huge payouts and upfront bonuses but also consolidation. However, as consolidation ramps up, eventually fewer firms may remain independent to compete with one another. Down the line, advisors therefore might have fewer options on where to go when they change firms. Over time, this could lead to less competition among firms that in turn have less incentive to innovate their services, back-office expertise and overall responsiveness for advisors.
Choice is key to obtaining the best technology and practice development resources relevant to a specific advisor. In the long term, potentially excessive consolidation might present advisors with a double-edged sword of increasing financial incentives versus decreasing support. If that transpires, advisors may have to decide whether they should accept the situation at a firm they joined just a few years ago, leave for yet another firm in hopes that its offering remains robust, or even start their own firm.
WSR: Given these trends, what can financial advisors and firms do during the remainder of the year to achieve maximum success in their recruitment goals?
Papike: Right now, advisors have so many options about how to run their businesses that they need to educate themselves on which firms out there can help them realize their vision. They also need to recognize how choosing the right firm is often influenced by the firm’s management structure, ownership structure and reputation for providing value specific to that advisor’s business model. It’s important for advisors to think about where they want to be 10 years from now, why they want that and what affiliation structure makes the most sense based on those goals.
For example, some advisors need to have an RIA as well as a broker-dealer affiliation, and some do not need both. If the vast majority of an advisor’s business is fee-based, and they do little to no business through commission-based annuities and funds, they should take a close look at the hard costs involved with broker-dealers such as state registration and affiliation fees. Conversely, broker-dealers are often essential for advisors who expect to use commission-based products. In addition, advisors need to educate themselves on the future plans of any firm that they are strongly considering joining. If the firm is privately held, try to find out whether it plans to stay that way and the details of its succession plan. This could depend on the age of the owners, since owners in their 70s or 80s might be looking to sell and exit quickly.
As for firms, its leadership must know what the firm is really about – its value proposition, strategic priorities, industry reputation, main competitors and recruitment costs for top talent. A good firm does not have to compete solely on payout, especially if doing so hampers its economics. It could compete on recruitment by focusing on the one thing it does for advisors better than rivals. Then the firm must communicate that capability to advisors, wholesalers and anyone else with influence in the marketplace who can sing its praises. Finally, of course, the firm must live up to that messaging with actions.
Chris Latham, Deputy Managing Editor at Wealth Solutions Report, can be reached at clatham@wealthsolutionsreport.com
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