When I formed our recruiting firm in 2001, we recruited advisors not only to independent broker-dealers but also to regional broker-dealers and wirehouse firms.
After six months, we made a conscientious decision to narrow our focus to recruiting to just IBDs.
We enjoyed conversing with staff with independent broker- dealers and their advisors, who tended to be more entrepreneurial and displayed a substantially lower "ego factor."
Working with IBDs was far less corporate — meaning more streamlined and less bureaucratic. In other words, working with them was a delight.
Having worked as a broker in the '90s at both Prudential Securities and Merrill Lynch, I found it to be a breath of fresh air to witness the cooperative environment between IBDs and their affiliated advisors, even when the advisors moved from one broker dealer to another.
The independent broker dealer had the task of supervision, processing business and perhaps supplying some services to help the advisor to operate more efficiently or grow their client base.
It was understood that the advisor's clients were indeed their own; they had control of their client relationships because of the trust and relationship they'd established with their clients over the years, not because of a broker dealer's branding.
If an advisor was dissatisfied or felt their BD was no longer a fit, they were free to move to a new firm unhindered.
To this day, our litmus test for deciding if a broker-dealer is truly independent is if its affiliated advisors are able to leave unfettered.
That independent spirit has been waning and is being substituted by a more captive, wirehouse approach, as IBDs have started to work around the system to hinder advisors from leaving their firm or to punish them on the way out.
To a large degree, IBDs don't employ these behaviors all the time. Instead, they seem to do so on a targeted basis in order to point out situations contrary to such criticism.
Recently we've seen IBDs targeting advisors leaving to join specific broker-dealers that appear to be especially successful at recruiting advisors from their firms in particular. These IBDs react by playing hardball in return and tend to employ these tactics:
1. They refuse to transfer Albridge data.
If you want to give advisor heart palpitations, not transferring their Albridge client data is one way to do so. When the broker-dealer can't be convinced to do the right thing and transfer this data to the new firm, the advisor oftentimes will need to lawyer up and fight back to get the data transferred.
This is one of the most spiteful actions for a broker-dealer to take, and it flies in the face of independence.
2. They don't pay residual fees, trails and commissions.
From the day an advisor gives notice of departure to their indie broker-dealer, the IBD they're leaving is required to continue to pay the advisor's residual fees, trailing fees and commissions for a period of 30-90 days.
The broker-dealer contract will specify the time, which 90% of the time is for 30 days.
In cases where an advisor owes the broker-dealer money, such as that tied to a forgivable note or to open litigation, it's understandable for the BD not to pay out residual income.
Otherwise not paying the advisor for the money earned during the contractual period is another way the BD can impose punitive action when an advisor leaves.
