by Bruce Kelly and featured in Investment News
New York – Inspired by the tremendous growth of Linsco/Private Ledger Corp. and its ability to recruit brokers and advisers, a number of independent-contractor broker-dealers are following the industry pacesetter’s recruiting model by building staff in order to snag brokers. Linsco’s affiliated sales force has soared, reaching 6,454 registered brokers and advisers at the end of last year, up from 4,700 in 2003 – an increase of 37%.
The San Diego and Boston based company and its top executives reaped the rewards of that growth when it was valued at $2.5 billion in a sale of 60% of the broker-dealer to two private equity firms.
Now other independent-contractor broker-dealers apparently are taking a page from Linsco’s handbook and hiring regional recruiting staffs to troll for brokers. Those firms include 1st Global Capital Corp of Dallas, Cambridge Investment Research Inc. of Fairfield, Iowa, First Allied Securities Inc. of San Diego, Mutual Service Corp. of West Palm Beach, Fla., NEXT Financial Group Inc. of Houston and Securities America Inc. of Omaha, Neb. Among the broker-dealer networks, Pacific Select Group LLC of Newport Beach, Calif., is revamping its recruiting staff.“With more recruiters, the current recruiters can be more effective with leads they get and be more thorough,” said Jonathan Henschen, president of Henschen & Associates, a recruiting firm in Marine on St. Croix, Minn. “It’s wooing the adviser, as they say.” Short staffed, firms sometimes bungle recruiting brokers and advisers, Mr. Henschen said. “Reps get a marketing kit and don’t hear from the broker-dealer. They get offended.” Linsco’s approach has been to build the largest network of recruiters at any independent-contractor firm, blanketing the country with as many as 30 or more regional recruiters at any given time.
Although other firms are not increasing their recruiting staff to that level or dispatching them all to regions, they certainly are building their recruiting networks.
One firm expanding its regional presence is Mutual Service Corp. With a presence on the East Coast, the firm is looking west and opening an office in Scottsdale, Ariz. Initially, the office will have a staff of four, all of whom will take on the roles of both recruiter and consultant, said Jay Vinson, vice president of new-business development. But that office eventually could grow to a staff of 20, he said. Mutual Service is part of the Pacific Select Group, which has three recruiters and which is looking to double its staff, said Kevin Beard, senior field vice president in Cleveland.
Thin margins and rising compliance costs are driving the efforts, one executive said. “I don’t know if it’s so easy to copy what Linsco’s doing,” said Adam Antoniades, president of First Allied Securities. “But clearly, the name of the game is growing. The independent model has always been a scale play,” Mr. Antoniades said. The firm is in the process of doubling its recruiting staff to a dozen and may go as high as 18, he said. Part of the job is getting advisers acquainted with the firm, another executive said. “Although our name is out there, two-thirds of the people we’d be a good home for don’t pick up the phone,” said Eric Schwartz, chief executive of Cambridge Investment Research.
Cambridge is revamping its recruiting efforts by dividing the country into four zones, placing a senior recruiter in each territory, and planning to hire two marketing and support staff members to work under each. In time, that will increase the size of its recruiting staff to 12, up from three recruiters last year.
NEXT Financial Group has added two recruiters so far this year and is looking to add another, said chief executive Jeff Auld. That addition would bring the firm’s recruiting staff up to eight.
When firms are acquired, advisers often look at switching broker-dealers, Mr. Auld said. “We seem to have an opportunity here where a lot of advisers are interested in making a move.”
“We’re expanding our regional model and putting more leadership in the field,” said Chris Flint, senior vice president, branch development, with Securities America. The firm has 10 full-time recruiters at the moment and wants to add five more, he said. In addition, Securities America may use its branch managers more in the recruiting process than in the past and, to that end, is talking with them about paying for certain expenses,
such as advertising and entertainment.
Over the next two months, 1st Global will be hiring 12 to 15 field recruiters to add to the five the firm already has, said CEO Stephen A. “Tony” Batman. The new effort is linked to investor demand for wealth management services, he said. Independent contractors are more flexible when it comes to financial planning and “practice the craft the way it should be done,” Mr. Batman said.