Osaic/Cetera Deal Rumor Raises Red Flags About Recruiting Tactics
A few weeks ago, rumors surfaced that Osaic was in talks to acquire rival Cetera Financial Group, in a deal that would create one of the largest independent broker/dealers with more than 23,000 advisors. An Osaic spokesman has denied the rumors, and several third-party recruiters took to LinkedIn.com, saying the rumblings were false and originated with a Texas-based recruiter trying to create fear and confusion among advisors.
The rumor took on a life of its own, and those recruiters say the incident points to a larger issue within the IBD space. It’s indicative of how fiercely competitive advisor recruiting has become, and how far some recruiters will go, using such fear-based sales tactics to spur advisor movement.
“I don’t recall the last time a rumor was distributed with such incredible efficacy,” said Philip Waxelbaum, founder and principal at Masada Consulting, an industry recruiting firm.
Waxelbaum wrote a LinkedIn post, calling it a “learning moment” for advisors and urging caution when receiving such information.
Several sources told Wealth Management that Cetera took legal action against the third-party recruiter who started the rumor. A Cetera spokeswoman declined to comment on legal matters.
Waxelbaum said there are between 320,000 and 350,000 FINRA-registered, client-facing advisors operating across different channels, and about 3% to 5% of those change affiliation every year.
“So you’ve got this in effect a cottage industry of startup recruiters, and there’s no supervision,” he said. “They’re running with scissors every single day.”
The sale rumors show how much the recruiting environment has changed, he added. Ten to 15 years ago, firms had their recruiting budget for the year, and once the money was spent, they were done until the next budget was set.
“The environment that you have right now is that every broker/dealer is fighting tooth and nail to meet their recruiting goals and to continue inorganic growth endlessly,” he added. “Recruiting budgets, they’re for good governance. Every firm has one, but they’re incredibly elastic. When you catch a firm that’s on a wild tear recruiting, there’s a capital partner, or they reset capital even within their own organization to keep it up, because you never know when the sun’s going to go down. So this kind of behavior, in many ways, is sponsored by the same entities that become victims to it.”
And nowadays, recruiting has become a much higher priority for the broker/dealers. Some of the recruiting organizations within these firms are quite significant and have direct or close access to the C-suite executives, Waxelbaum said.
He also attributes this heated environment to a “pervasive doom mentality,” with recruiters afraid of a repeat of 2008, which would bring advisor movement to a halt.
“Every recruiter operates like many salespeople do, that this is all just a fantasy, and if I don’t make as much as I can in this moment, I may never earn a penny again,” he said.
‘Stupid Money’
Jeremy Belfiore, owner and CEO of Trust Visions Placement & Consulting, also posted on LinkedIn, urging advisors not to panic and to do their due diligence when considering a third-party recruiting firm. In an interview with Wealth Management, Belfiore said there’s greater competition among recruiting firms focused on a high volume of deals rather than quality.
“Unfortunately, a lot of recruiting firms and recruiters try to strike fear in an advisor’s mind and get them to move as quickly as possible,” he said. “Everybody has goals to meet.”
He said much of the frenzy has been driven by LPL Financial’s acquisition of Commonwealth Financial Network, a firm with many high-quality, coveted advisors. Some of the large IBD competitors sweetened their recruiting deals to capture Commonwealth advisors, and they’re offering those same deals to advisors at other firms.
“They’re just throwing stupid money away out there,” Belfiore said. “A lot of advisors are being told, ‘Hey, you’ve got to move now. Even if you’re not completely unhappy, you’re never going to see this type of money again.”
He saw one team recently receive 230% of their trailing 12-month production.
“I don’t think it’s going to last, but yeah, the money out there is just astronomical,” he said.
That pressure for growth is coming from a race to achieve scale at the broker/dealer level, Belfiore said. But there’s a delicate balance between measuring and defining growth and not losing who you are as a b/d.
Frank LaRosa, CEO of Elite Consulting Partners, a transition consulting firm, who also posted his thoughts on LinkedIn, said the rumor was a symptom of the pressure b/ds are under to grow and meet their recruiting targets.
“The firms are so hungry, desperate to bring in as much as they can in client assets, because in the IBD world, the margins are so thin that they need more assets to really continue to grow revenue,” he said.
And as firms increase the size of the transition deals they offer, they have to bring in even more AUM to maintain profitability.
“They’re becoming their own worst enemies in a way, which is great, but the problem lies in the fact that they’re being so aggressive across the board,” LaRosa said. “I’m not just talking about LPL, but firms across the board or being so aggressive with advisors. … They have to be aggressive because the lion’s share of what most firms offer, 85% of it, is the same.”
Oversight and Trust
Waxelbaum said there’s a need for oversight of the recruiting community, and he would welcome it. But there’s no appetite for it at FINRA, leaving supervision up to the member firms that employ the recruiter as a third-party contractor.
In the same way an advisor is focused on earning the client’s trust, the platforms, recruiters and broker/dealers should have that same high level of commitment to trust with their advisors, said Kristen Kimmell, executive vice president of business development at Osaic.
“Regulation is in place to protect their clients who are seeking information from advisors, but there’s no regulation in place to protect advisors from that same type of position that they’re in,” she said. “My team here at Osaic, we take that responsibility very, very seriously.
“My worry behind this is advisors have challenging enough roles on a daily basis, dealing with their clients and the importance of what they do, and to have to navigate this other onslaught of false information that could cause fear in how they think about their business from a future standpoint or where they’re doing business is unnecessary,” she added. “And I think as an industry, we need to do our best to make sure that we avoid that undue burden on those advisors.”
As far as the recruiting environment, Kimmell said she was excited about the options now available to advisors for finding the platform ideal for their business, and said Osaic can help advisors navigate the complexity of the choices.
“Advisors should understand that they are in the catbird seat, that they’re coming from a position of strength, that they are highly sought after,” LaRosa said. “But there’s a lot of noise, and they should be mindful about who they’re working with and making sure that that person or the company that they’re working with has a lot of experience in the industry to help them navigate through the noise. Otherwise, they’re just working with a salesperson. In the case of this rumor mill, think about how your relationship started. If it started off with somebody trying to fear-monger you into taking a phone call, probably not a good way to start a relationship.”
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