When I formed our recruiting firm in 2001, we recruitedadvisors not only to independent broker-dealers but also toregional broker-dealers and wirehouse firms. 

After six months, we made aconscientious decision to narrow our focus to recruiting to justIBDs.

We enjoyed conversing with staffwith independent broker- dealers and their advisors, who tended tobe more entrepreneurial and displayed a substantially lower "egofactor." 

Working with IBDs was far lesscorporate — meaning more streamlined and less bureaucratic. Inother words, working with them was adelight.  

Having worked as a broker in the'90s at both Prudential Securities and Merrill Lynch, I found it tobe a breath of fresh air to witness the cooperative environmentbetween IBDs and their affiliated advisors, even when the advisorsmoved from one broker dealer to another. 

The independent broker dealer hadthe task of supervision, processing business and perhaps supplyingsome services to help the advisor to operate more efficiently orgrow their client base. 

It was understood that theadvisor's clients were indeed their own; they had control of theirclient relationships because of the trust and relationship they'destablished with their clients over the years, not because of abroker dealer's branding. 

If an advisor was dissatisfied orfelt their BD was no longer a fit, they were free to move to a newfirm unhindered.  

To this day, our litmus test fordeciding if a broker-dealer is truly independent is if itsaffiliated advisors are able to leaveunfettered. 

That independent spirit has beenwaning and is being substituted by a more captive, wirehouseapproach, as IBDs have started to work around the system to hinderadvisors from leaving their firm or to punish them on the wayout. 

To a large degree, IBDs don'temploy these behaviors all the time. Instead, they seem to do so ona targeted basis in order to point out situations contrary to suchcriticism. 

Recently we've seen IBDstargeting advisors leaving to join specific broker-dealers thatappear to be especially successful at recruiting advisors fromtheir firms in particular. These IBDs react by playing hardball inreturn and tend to employ these tactics:

1. They refuse to transfer Albridge data.

If you want to give advisor heartpalpitations, not transferring their Albridge client data is oneway to do so. When the broker-dealer can't be convinced to do theright thing and transfer this data to the new firm, the advisoroftentimes will need to lawyer-up and fight back to get the datatransferred. 

This is one of the most spitefulactions for a broker-dealer to take, and it flies in the face ofindependence.  

2. They don't pay residual fees, trails andcommissions.

From the day an advisor givesnotice of departure to their indie broker-dealer, the IBD they'releaving is required to continue to pay the advisor's residual fees,trailing fees and commissions for a period of 30-90days. 

The broker-dealer contract willspecify the time, which 90% of the time is for 30days. 

In cases where an advisor owesthe broker-dealer money, such as that tied to a forgivable note orto open litigation, it's understandable for the BD not to pay outresidual income.

Otherwise not paying the advisorfor the money earned during the contractual period is another waythe BD can impose punitive action when an advisorleaves.  

3. They break up departing groups of producingadvisors.

We've witnessed large groupschange BDs and lose up to half their advisors, who choose to staybehind. 

It's one thing when an advisordoesn't want the inconvenience of moving BDs, but another when theoriginal broker-dealer intervenes and offers carrots to teammembers to get them to stay. 

Broker-dealers may go to war witha particular producer group (recently motivated to leave by thebroker-dealer they're joining ), and the gloves come off as the BDpoised to lose advisors offer the following to get some in thegroup tostay:                     

• Anenhanced payout, or even 100% payout for up to threeyears;
• Lowering their rep-directed advisoryadministrative fee percentage;
• Waivingbroker-dealer expenses for 1-2 years;
• Albridge fee waivers;
• Rebateof Envestnet costs;
• Retention notes that are unusually high (20-25%of trailing012 gross dealer concession)

Office of SupervisoryJurisdiction groups and Super OSJ groups may have rep counts thatcan go into the hundreds; some also include a lead OSJ and severalOSJs within a group. 

Still, regardless of their size,they should be able to move freely to a new firm with all theadvisors in their group.

If one of their advisors choosesto stay, that's (of course) their choice. But it isn't ethical fora broker-dealer to intervene at the time of exit and apply divisivetactics.  

4. They assign clients to anotheradvisor.

Although a less common occurrencein the IBD channel, this wirehouse tactic is employed by a fewindependent broker dealers that claim to be independent.

We've also had some advisors tellus that their prior firms made up false narratives about them andshared such stories with their clients in order to make clientsfeel insecure about moving away from the existing BDs and going totheir advisor's new firms. 

One broker-dealer firm hasregional managers compensated with a year-end bonus tied to theamount of assets in their territory. Thus, it's from the regionalmanager that the orders to keep assets at the firm at any cost seemto trickle down.  

5. They delay the release of a license to the newfirm.

The old firm is required torelease the advisor's license to the new firm within 30days. 

With the tactic of waiting thefull 30 days before releasing the license, the BD's motive is todecrease the advisor's retention in the hope of increasing thenumber of orphan accounts that will then be swept into the priorBD's house accounts. 

This is a petty vengeful tacticto employ, but it happens more frequently than you maythink. 

The Consequences of Bad Behavior

Broker-dealers that decide tocross over into these non-independent broker-dealer tactics riskpoisoning their recruiting waters. 

Not only do third-partyrecruiters like me zero in on such behavior, but wholesalers andadvisors talk about this heavy-handed spiteful behavior,too. 

Over time, an IBD's reputation inthe recruiting world can be irreversibly damaged, no matter howmuch they offer in upfront dollars. 

A good reputation is a brokerdealer's most valuable possession, and the thinking that they canindulge in these tactics without impunity seemsdelusional. 

When firms get into a pattern ofethical compromise, like the character Walter White in the seriesBreaking Bad, their moral compass becomes broken.

As they drift intorationalization, their reputation and recruiting ability can beirreversibly damaged as word hits the street about theirnon-independent behavior.