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Regionals Ride Recruitment Wave -- Why Big Firms Worry

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Regional broker-dealers are in the midst of a recruiting renaissance.

After posting record numbers in 2014, executives and branch managers say that they are keeping up the momentum.

"I'm very comfortable that we can get to the numbers we made last year and maybe get a little bit above them," says Pat Vaughan, who oversees nearly 700 advisors as east division director at RBC.

Several regional firms are making efforts to ensure this year matches the recruiting successes of 2014, a banner year for many.

For example, a spokeswoman for RBC says that 2014 was the firm's best year for recruiting since 2009. The firm picked up 82 financial advisors managing more than $8 billion in assets and generating close to $60 million in production.

Raymond James has also been putting forth aggressive recruiting efforts to grow its employee channel. The firm declined to provide exact figures, but according to publicly announced moves, Raymond James added at least 55 advisors in 2014 managing more than $5 billion in assets.

Meanwhile, St. Louis-based Benjamin F. Edwards added 40 advisors managing approximately $2.2 billion, according to a spokeswoman, who declined to comment further on the firm's recruiting efforts. The firm also opened nine new offices last year, according to press releases.

Industry insiders say that brokerage firms like these, and particularly the so-called super regionals, have been enjoying recruiting success because of a cultural advantage and more level playing field when competing with their wirehouse rivals.

"I think you got a lot of advisors who want wirehouse abilities, but not wirehouse culture," says Rob Blevins, president of recruiting firm Rowlette.


"Culture is an overused word in our business," says RBC's Vaughan. But, he says, it's an important factor in his and other regional firms' recruiting efforts.

"The size of our firm allows us to give access to senior management, but also to traders and analysts. They're not just talking to liaisons every day – they are talking to [the experts]," Vaughan says.

Regional branch managers also argue that their firms provide more leeway than the wirehouses, which boosts their appeal when recruiting.

"I think the best way to put this is that a lot of the wirehouse advisors feel like they are being managed to the lowest common denominator," says Brian Lampsa, Chicago complex manager at Raymond James. "All policies, procedures, compliance is put in place to protect the firm from a rogue advisor. We would rather not put our good advisors through a bunch of unnecessary hoops. It's easier to fire the bad advisor and move on."

Recruiter Bill Willis adds that "there are a large number of people at the wirehouses who are tired of that and looking for something different. These firms represent a space in-between button-down wirehouses and independents. They not only have a deal, but a cultural deal."

The cultural pull appears to be particularly strong for those wirehouse advisors who originally come from smaller firms that were acquired by larger companies. Vaughn notes that last year most of about half of his firm's recruits came from Morgan Stanley, some of whom were former Smith Barney and Legg Mason advisors.

"Smith Barney had a very good culture and reputation. I think we do attract that particular individual," he says.


Industry observers also say that regional firms have improved their technology and product offerings and are therefore more competitive with the wirehouses.

Recruiter Danny Sarch says that the wirehouses are not as innovative as they once were, and that the regional firms have caught up in terms of products and services available to clients.

 For instance, in recent years Raymond James made upgrades to its technological offerings. Branch manager Lampsa says it has made a huge difference.

"I think 10 years ago, some of the regionals were lacking in some tools and technology to be able to compete. That's no longer the case," says Lampsa. "I would stack Raymond James' technology offering against anyone on the Street."

While still often below the wirehouse level, the recruiting packages that regional firms offer have gotten more competitive. "Now that their deals are financially closer, it makes the decision easier for some," says Willis, the recruiter.

Jerry Lombard, president of Philadelphia-based Janney Montgomery Scott, says that his firm re-established an aggressive recruiting package after scaling back briefly in 2014.

"We have a strong and unique story to tell, but coupled with a stronger deal than most regional firms offer, it's a deadly competition. When we pulled back on the deal, we naturally saw the results diminish," he says.

Lombard, whose firm has about 740 advisors, says that Janney's deal for a $500,000 producer was about 115% and is now about 150% under the re-established package. The firm's deal for a $1 million producer was about 150%, but is now about 200%.

Additionally, Janney's management is stepping up its recruiting efforts this year by hiring an outside consultant, and doing more frequent manager calls and training, Lombard says.

"I'm going to say that we expect our recruiting effort to account for about 40% of our year-over-year revenue growth. So it's a big contributor to revenue growth in my division," he says.

George Keith, a Janney complex manager in Darien, Conn., expects the firm's efforts and the more competitive recruiting packages to help seal the deal with prospective new hires.

"We're recruiting people north of $700K in production," says Keith, who has recruited eight advisors over the past 16 months, including a $1 billion team from Merrill Lynch.


Industry insiders say that the wirehouses still offer the biggest deals. A UBS spokesman said that in 2014 the firm recruited 113 advisors managing $21 billion in assets. All of their hires, the spokesman says, managed more than $100 million in AUM or generated more than $1 million in annual production.

"At UBS, we are focused on being the firm of choice for ultrahigh-net-worth and high-net-worth clients and the financial advisors who serve them," the spokesman said.

Spokespeople for Morgan Stanley and Wells Fargo declined to comment for this article.

A Merrill Lynch spokeswoman noted that the firm raised its headcount to 14,085 advisors during the fourth quarter of 2014. She added that last year the firm had a 5% attrition rate, better than their best year in 2007, when the firm reported a 5.5% rate.

Regional managers, however, remain confident that they can maintain a strong recruiting pace this year, citing a more level playing field as well as the expiration of a number of seven year contacts signed by wirehouse advisors in the wake of the financial crisis.

"I think that if I can properly represent to a recruit what this company represents and how much [happier] they could be here, then there's no way that they won't come here," says Janney's Keith.

He adds, "There's pressure on us to bring people in. Janney has done their job, and I'm very optimistic."

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