Last year will no doubt be remembered as the year the real estate bubble burst, setting off the subprime mortgage debacle, housing foreclosures, bank losses, a global credit crunch and extreme market volatility. But little of this distress was reflected in the independent broker-dealer world, where revenue growth almost doubled and payouts and fee income continued to rise, while sales of most investment products also increased. What accounts for the good times? "There are so many things that are just demographically in our favor," says Wayne Bloom, managing principal of wealth management at Commonwealth Financial Network. "Baby boomers inheriting wealth, the amount of IRA rollovers, complex markets, the aging of America—these all equate to unprecedented demand for professional money management."

In this, Financial Planning's 23rd Annual Independent Broker-Dealer Survey, all but one of the 82 participating firms reported an increase in revenues. Our FP50 firms—the 50 largest independent broker-dealers, ranked by total revenues—grew 23.3%, on average, compared with 17% in 2006. The top four firms maintained their positions at the pinnacle of our list, and LPL Financial extended its reign at No. 1. "It's a fantastic time to be an independent financial advisor," says Larry Roth, chief executive officer of AIG Advisor Group, which ranked No. 7, up from No. 9 last year. "People are nearing retirement and individuals are becoming more thoughtful about planning their future. The more they want to actively plan their future, the more important it is to them to find an advisor who can serve their needs not only today, but also over the long haul."

Recruitment Frenzy
It's not just potential clients who are nearing retirement. The older generation of planners is also reaching a point when it may be considering leaving the workforce or scaling back. Meanwhile, there aren't nearly enough experienced advisors to take over. The finite pool of experienced planners and the increased demand for their services drove up the competition among B-Ds to recruit top advisors. This was reflected in an average increase in total payout per firm of 19.5%, compared with 15.3% in 2006. Average payout per rep increased 18.4% over 2006—an average of $156,000 versus $131,000. Recruiting efforts seemed to have succeeded: The FP 50 added an average of 289 reps. Only 22%, or 11, of the firms showed a net loss of advisors in 2007.

While the FP50 raised their minimum production quotas in 2007 by an average of more than 10%, the increase was slightly less than the year prior, when firms raised quotas 14.9%, on average. Geneos Wealth Management bumped up its production quota the most, from $100,000 to $150,000 last year. This may be due to the firm's interesting recruiting strategy: The B-D has always limited itself to a maximum of 500 reps and therefore is highly selective in its search for high-end producers, says Ryan Diachok, vice president of marketing at Geneos. These efforts seemed to have paid off, as Geneos' revenue grew by more than half in 2007, bringing the firm into the FP50 for the first time.

At the other end of the spectrum is Northwestern Mutual, which has no minimum production quota and which deliberately seeks out inexperienced advisors to mold. Despite 12.7% revenue growth, Northwestern Mutual fell two spots to No. 8. "Northwestern Mutual is probably the last remaining old-school insurance company, and old-school insurance companies very much recognize the need to recruit from the bottom up," says Philip Palaveev, president of Fusion Advisor Network and a former principal at Moss Adams. "They have a proprietary-product system, so they sell only Northwestern Mutual insurance, while a lot of other companies open up the product line to all competitors. But [Northwestern Mutual has] actually been getting good results."

Competition for reps prompted many firms to spend more on technology. The 82 broker-dealers in this year's survey spent $572.4 million, combined. Twenty of the FP50 firms spent more than $1 million, with Signator Investors ($6 million); Commonwealth Financial Network ($4.4 million); and Genworth Financial Securities ($2.9 million) topping the list.

This year, for the first time, we asked B-Ds about non-compete agreements. We wanted advisors to know which B-Ds required them to sign these contracts, which may deprive them of some measure of independence. "In general, a non-compete agreement makes a firm less attractive, because it constrains the ability of a rep to transition to a new firm or to develop an effective succession plan," says Walter White, president of Woodbury Financial. "Non-compete or non-solicit agreements can prevent a rep from maintaining the client relationships the rep has cultivated and can impair the service the clients will receive should the rep move to a new firm. They block the rep from building transferable equity in his or her book of business." Non-compete contracts are not uncommon. Nine firms acknowledged using them: AXA Financial Advisors, Associated Securities, CFG/H Beck, IFMG, NY Life Securities, Park Avenue Securities, Securian Financial, UVEST and Prime Capital Services.