The idea is that a small B-D can become an OSJ of a larger firm, keep its independence, retain its people and gain the resources of the larger firm.

As an OSJ in a larger organization, the B-D gets more robust technology, practice-management support and marketing heft—all useful in attracting recruits, Papike says—while ridding itself of time-sucking back-office activities like compliance and operations.

Succession Planning Ties
These days, you can’t talk about recruiting without talking about succession planning at the same time.

It’s the rare advisor or team that’s not thinking about succession-planning when thinking of changing B-Ds. In fact, succession planning is often the driving force behind a move. When older advisors join with younger professionals, one of the parties often joins the other’s B-D.

“I’m steering [older] people toward larger B-Ds thick with reps in their local area,” says Jon Henschen, founder of the recruiting firm Henschen & Associates in Marine on St. Croix, Minn. “There is more opportunity to sell a book that way” and get financing from the broker-dealer.

Firms themselves are getting more aggressive in helping reps with succession plans, Henschen adds. The help from firms can include assistance in finding matches within a firm, but also help with searching outside the B-D for suitable mates, he says.

“When I’m talking to young advisors, they want to know what the potential is at Commonwealth to be a successor,” Daniels says. And senior advisors, who usually have a five- to 10-year work horizon, “want to know what sort of talent pool exists to place their books with.”

Over the last year, LPL’s Pirigyi estimates that about a third of the succession plans the firm has worked on involved purchasers who were outside the firm.
Bigger firms or offices with multiple advisors are at an advantage, Dudash says. With a larger office, clients of a retiring advisor have more new advisors to choose from and are likelier to stick around and earn the retiring advisor a higher payout. Plus, larger OSJs can get bank financing, says Dudash, who started his firm with the idea of attracting aging reps. He currently has about $300 million in assets coming over from recruits who will be retiring in the near future.

Employee advisors, especially, have huge incentives for going independent before retirement. When structured correctly, the independent firms they set up can create an asset they can sell at a higher price then they’d get from a commission-splitting scheme at a wirehouse or employee firm. And the sale of an independent practice may be taxed at lower capital gains rates while the advisors face ordinary-income tax treatment with a sunset plan at a captive firm.

A wirehouse advisor might get a multiple of one-times trailing-12-month production with a sunset plan, Dudash says, but could probably double that value by going independent. Add in the benefit of a lower tax rate, and a $1 million producer could net $1.6 million as an independent versus $650,000 at a wirehouse.

“This is a big deal to a lot of wirehouse advisors,” says Edde. The difference “amounts to hundreds of thousands of dollars, sometimes millions.”

In addition to the financial and psychic benefits the independent broker-dealer channel has always offered, the succession angle should play out for some time in the recruiting wars. It’s no secret that advisors are aging, and although many have kept working past the normal retirement age of 65, at some point old age will finally catch up with them and more will have to arrange for a successor.

“Americans overall are living longer, which means advisors are, too,” Daniels says.

“So instead of retiring in their 60s, advisors are now looking to retire in their 70s,” he says, and “our corner of the industry is well positioned for that.”