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As the grip of the Big Four wirehouses — Merrill Lynch, Morgan Stanley, UBS and Wells Fargo Advisors — on financial advisers has lessened over the past 10 years or so, one of the main arteries for attracting new financial advisers, recruiting, has evolved as well.

Twenty years ago, around the time of the dot.com stock bubble, if a reporter naively asked a third-party recruiter who worked with wirehouses whether an adviser would consider moving to an independent contractor broker-dealer like LPL Financial or Commonwealth, the recruiter would have laughed and said, “Not in a hundred years.”

OK, the payout is higher at the independent firm, but where’s the lead generation? Where’s the brand? Where’s the upfront bonus? Where are the stock options? In short, where’s the money, either in the adviser’s pocket or on the adviser’s horizon?

That push-pull structure has all changed. The wirehouses, except for Wells Fargo, made it clear a few years ago they were moving away from recruiting, which is expensive, in favor of training, retention and better technology. The recruiting industry scrambled.

Recruiting is no longer a straight-up proposition of moving a wirehouse adviser from Merrill Lynch to UBS, or vice versa, for example, or an LPL Financial adviser to Commonwealth Financial Network. In that scenario, the adviser gets a big check, and the recruiter a small piece paid over time.

Today’s business of recruiting is much more varied, and potentially lucrative, as the advice industry has created the technology to enable an adviser to move more easily to one form or another to a registered investment adviser, increasing his or her overall take-home percentage of every dollar of revenue and also potentially building equity in a business owned by the adviser, not the bank. And the recruiter then gets paid.

“Ten years ago, we only had independent broker-dealer clients, and now we work with broker-dealers, RIAs and the custodians,” said Jodie Papike, president of Cross-Search, a third-party recruiter. “It was nowhere near the options for advisers we have today.”

“Broker-dealers are positioning themselves more as RIAs and less as broker-dealers, realizing that is the direction of the industry,” said Jon Henschen, another third-party recruiter. “The advent of large RIAs similar to big [offices of supervisory jurisdiction] has been making an increasingly large footprint over the last few years.”

RISE OF THE RIAs

Wirehouses have always shed experienced advisers, but those advisers used to be much more likely to be recruited by another broker-dealer. RIA moves started really picking up between 2016 and 2017, according to InvestmentNews Research data.

Fee-only firms analyzed by InvestmentNews have at least $100 million under management and are based in the United States. In addition, fee-only firms primarily serve individuals with investment management and financial advice, they do not employ representatives of a broker-dealer or insurance company, and they do not charge commissions.

Meanwhile, the number of broker-dealers has been shrinking for more than a decade.

“The pitch has changed,” said Casey Knight, executive vice president of ESP Financial Search. “When I call an adviser, now I want to gauge what he thinks about being an independent adviser and what that all could mean versus saying, this is the deal from Wells Fargo.”

For example, the total number of RIA firms with a fee-only model has risen to 2,663, according to an analysis of the latest data from the Securities and Exchange Commission. That’s up from 2,215 firms in 2019, an increase of 20%