Raymond James is winning the war for Commonwealth talent. Here's why

Raymond James' recent run of recruiting Commonwealth Financial Network advisors has been accompanied by plenty of assurances about good cultural fits and advisor- and client-centric values.

But underlying the deals — which have accelerated significantly since LPL Financial went public in March with plans to buy Commonwealth for $2.7 billion — is an increase in the pay Raymond James offers third-party recruiters for helping it find advisors to poach from industry rivals. Raymond James has become the primary destination for advisors leaving Commonwealth, having brought over nearly 70 in the five months following LPL's announcement of the acquisition.

Phil Waxelbaum, the founder of the recruiting firm Masada Consulting, said Raymond James' recruiting was in the doldrums as recently as 2023.

A common belief in the industry is that the way out would be to simply start offering advisors more money for changing firms. But Raymond James had reason to doubt that conventional wisdom, said Waxelbaum, who does not recruit for the firm.

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"They looked at: How many deals did we lose last year to better financial offers?" Waxelbaum said. "And they found it wasn't that much. They lost some, but it wasn't the big reason for their severe recruiting shortage. The big reason is they didn't talk to enough candidates to begin with."

Raymond James 'needed more swings at the plate'

Waxelbaum said Raymond James did eventually increase the amount of money it offers advisors as part of recruiting deals, although the amount on offer is still far from the top in the industry. The bigger change the firm made was to up the percentages it offers to third-party recruiters for successfully bringing over advisors from rivals.

He said Raymond James' compensation for many third-party recruiters has moved toward the upper end in an industry in which payouts for recruiters range from 6% to 15%. The result has been an increase in recruiters presenting Raymond James with advisors looking for a change of firms.

"Change was needed, but they didn't necessarily need a better close rate," Waxelbaum said. "What they needed was more swings at the plate."

Rick Rummage, the CEO of the recruiting firm The Rummage Group, said Raymond James isn't the only firm to have upped its incentives to third-party recruiters. The common practice, he said, is to tie increases in payouts to a recruiter's ability to hit benchmarks, such as bringing over a certain amount of assets or revenue from rival firms in a given year.

"And they all run promotions," Rummage said. "So if they're having a bad year, then they might increase what they pay third-party recruiters for the rest of the year. It may be all recruiters, or it may be only a certain percent. Or it may be the ones who placed a certain dollar amount the year before."

Raymond James' recruiting wins from Commonwealth, other firms

Raymond James' recruiting success has been particularly noticeable in the string of teams it has pulled from Commonwealth in recent months. The industry-tracking firm AdvizorPro counts nearly 70 advisors pulled from Commonwealth from March, when LPL announced its purchase plans, to August. 

That's more than double its closest rivals for recruiting Commonwealth advisors. The independent broker-dealer Kestra Financial has picked up around 30 from Commonwealth, according to AdvizorPro. And Purshe Kaplan Sterling Investments has gained just over 20 advisors through an affiliation with Summit Wealth Group, a firm that left Commonwealth in May to become a registered investment advisor.

Raymond James' recruits from Commonwealth include:

• Hinkson Wealth Management, a three-advisor team formerly managing $450 million out of Troy, Michigan
• FlahertyColvin, a two-member team that had managed $305 million out of Westerville, Ohio

• Village Wealth Management, led by four advisors that had managed $125 million in client assets out of Dundee, Michigan Rydge Wealth Management, a San Francisco Bay area group that managed $330 million at Commonwealth
• Custom Wealth Strategies, which had overseen $315 million in client assets in Depew, New York

But Commonwealth hasn't been the only happy hunting grounds for Raymond James. It's also pulled advisors from UBS, M Financial Group and Wells Fargo, among other industry rivals. 

Discussing Raymond James' second-quarter earnings in an analyst call in July, Raymond James CEO Paul Shoukry boasted that the firm's "advisor recruiting pipeline is growing significantly across all of our affiliation options."

"It's all hands on deck, both recruiters … and we've invested in the transition teams as well, giving them more capabilities and capacities to really help with the uptick to ensure that we have seamless transitions of the new advisors that are affiliating with the platform," he added.

The likely appeal of a middle-sized firm to Commonwealth advisors

Raymond James' recruiting successes come amid LPL's full-court press to meet its goal of keeping at least 90% of the $285 billion in assets under management and 2,900 advisors Commonwealth had when its acquisition was announced. Some in the industry have questioned if advisors accustomed to the relatively small Commonwealth will ever feel content at the much-larger LPL, where the advisor headcount exceeds 29,000.

But both LPL executives and industry analysts have expressed confidence that the target can still be hit. The analyst firm Wolfe Research acknowledged in a note last month that departures from Commonwealth have accelerated in recent weeks, but "we still see a credible path to >90% retention based on our analysis of prior deals, with peak attrition typically occurring 3-6 months post announcement." LPL did not respond to a request for comment.

Raymond James is also not the only firm to have upped its recruiting deals in recent years; some have done it in a way specifically aimed at Commonwealth advisors. Cetera Wealth Management President Todd Mackay notably published two online "open letters," the second of which offered transition assistance equal to as much as 150 basis points — or 1.5% — of their assets under management for accepting a recruitment deal.

Jeff Nash, the CEO and co-founder of the recruiting firm Bridgemark Strategies, said Raymond James' recruiting success also comes down to the fact that it's able to offer the extensive back-office support found at large firms while also having a relatively low headcount. Raymond James reported last October that it had 3,826 direct-employee advisors and 4,961 advisors in its independent channel.

"Raymond James is having a lot of recruiting success, and part of the reason is they've created an advisor-centric platform and a firm that has the scale and critical mass that seems unlikely to be bought or sold in the marketplace in the world of broker-dealer consolidation," Nash said. 

Conflicts of interest, perceived or real?

Waxelbaum said high payouts to third-party recruiters can present the perception of a conflict of interest; advisors may worry they are being directed to a certain firm simply because the result will be higher compensation for the recruiter they're working with. 

Waxelbaum said such concerns are often overstated. Most recruiters, he said, are scrupulous enough not to send advisors to firms just because of the money on offer.

"But I don't care how ethical you are — and there are some very helpful people in recruiting business — but if there's a candidate and there's a firm that's competing for the loan and is paying a recruiter 6%, and there's another firm that's paying 15%, the recruiters are going to be pretty vested in that successful recruit going to the 15% firm," Waxelbaum said. "All things being equal, the high pay wins." 

Of course, higher payouts to third-party recruiters don't come without costs to firms' balance sheets. As recruiting offers to recruitable teams have increased in recent years, so have the number of years advisors are required to stay put if they want to avoid paying back part of those deals should they choose to move again.

Waxelbaum said many offers are structured to assume that a recruited team will be able to contribute revenue at a rate comparable to advisors who have been at the firm longer at around the 45-month mark. Generous deals for third-party recruiters can stretch that timeframe out to 60 months, he said.

"It is very expensive," Waxelbaum said. "And it's not just expensive. It changes the whole paradigm about the accretive value of recruiting to begin with."

But Raymond James has evidently decided the economics make sense.

"So what Raymond James decided is that we enhance compensation to the best recruiters, it'll give us a better look," Waxelbaum said. "And it's cheaper to have the best recruiter deal than it is to have the highest pay for advisor deals."