Riding a bull market is never a bad time to be an advisor. Assets under management go up and books bulge. And those bigger books create a hot market for advisors, as rival firms vie for their assets.

Indeed, Bill Holland, CEO of CI Financial Income Fund in Toronto, calls the recent environment “the most competitive market for advi-sors” he has seen in 20 years.

The prolonged bull market, the particular strength in financial services stocks and the proliferation of upstart firms eager to grow their businesses have combined to boost compensation and recruiting costs, Holland says.

Financial services industry employment trends are market-sensitive, with head counts rising and falling in lockstep with market conditions. Today’s situation is no exception. After several years of strong returns, employment levels are up. Total industry employment surpassed 41,000 in the first quarter of 2007, up 2.7% from a year earlier, according to data from the Investment Industry Association of Canada. This follows a 4.5% workforce increase in 2006 over 2005 levels.

While employment is up across the industry, the growth has been powered largely by the institutional side. Purely institutional firms have seen double-digit percentage gains in their employment totals, whereas the retail business has lagged slightly.

It appears that rather than simply adding bodies, retail operations are bulking up by mining the richest available source of successful brokers: the firm across the Street. Institutional firms may be able to take newly minted MBAs and math prodigies and plug them straight into their investment banking and trading operations, but it often takes a few years of trial by fire to identify a successful broker. So, firms looking to staff up quickly are often better off stealing a proven performer from a rival firm than training their own rookies and waiting to see which ones make good.

Strong markets also favour the tactic of raiding a rival rather than training from within. While brokerage firms and fund dealers are constantly on the prowl for good producers, there’s no better time to try and lure them over than when the industry is thriving, both from the advisor’s point of view and the firm’s.

In a bear market, advisors can become more risk-averse and unwilling to take the chance of jumping ship. When times are good, the expectation is that clients will be happy to follow. Any assets that are lost in the move can soon be replaced in a strong market and the expected benefits of working for a new firm should make that task even easier.

Moreover, advisors are going to be more willing to move with a good year behind them, not only because its easier to recoup any asset leakage in such an environment but because the previous year’s production also typically dictates the size of signing bonus they can demand.

Similarly, firms are willing to pay for producing advisors in good markets because the cost of the transition can soon be covered by their added production. But when advisors are struggling to add assets, the costs of their recruitment becomes another item in a long list of unwanted expenses.

Analysts who cover various segments of the investment industry confirm that the market for advisors is robust. Stephen Boland, executive director and analyst at CIBC World Markets Inc. in Toronto, reports the current market for advisors is very competitive. “Brokers seem to be receiving multiple bids to move,” he says.

This increased demand is naturally helping to put upward pressure on the prices firms have to pay to lure advisors. Boland says that the top price he has heard of dealers paying an advisor to make the leap is 150% of the previous year’s gross commissions in a mix of cash, equity and loans. Typically, the going rate has been closer to 100% of the previous year’s production for a top advisor.

John Aiken, vice president of equity research at Dundee Securities Corp. in Toronto, agrees that the market for advisors is very competitive right now. He, too, has heard that transfer prices are rising.

Industry analyst Dan Hallett, president of Windsor, Ont.-based Dan Hallett & Associates Inc., says that while 150% of trailing revenue sounds high, it is not unreasonable. “Often what you’re getting with a top advisor is not just the clients he or she brings to the new dealer, but the other advisors that want to follow,” he says. “Top advisors often have an advisor following. So, it’s often worth it for dealers to write a big cheque.”

@page_break@Hallett says some dealers are paying between 70 and 80 basis points on assets under administration for advi-sors with “moderately sized” books, so a rich price on top advisors doesn’t sound out of line.

CI’s Holland hasn’t heard of firms paying as much as 150% of past production, but, he notes, prices for advisors are much like posted mortgage rates — highly flexible, depending on how dearly firms want the business.

And it’s not just the elite advi-sors that are attracting interest. Holland estimates that the top 50% of brokerage advisors and the top quarter of mutual fund dealer reps are probably in play.

The question for advisors that are fielding these sorts of generous offers is how long this hot market for their services is likely to last. If the current market turbulence starts leading to layoffs on the Street, that could be enough to cool things down, Holland suggests. But in the meantime, he reports, the cost to recruit advisors is at the highest level he’s ever seen.

While the current level of demand for advisors — and the prices they can command — may be at an all-time high, these conditions aren’t brand new. Boland suggests that this sort of recruiting intensity has prevailed since the start of the year, after many brokers enjoyed record results in 2006.

According to a couple of the industry’s top firms, the recruiting environment hasn’t changed much in the past few months, as competitive as it is. John Grandy, managing director and head of research at Toronto-based institutional firm Westwind Partners Inc. , reports that the two brokerage firms he covers — Canaccord Capital Inc. and GMP Capital Trust — both say that they haven’t seen recent changes in the market for advisors. “Demand remains very competitive, but both of them have been able to recruit the people they have wanted,” Grandy says.

Indeed, numbers from the Investment Dealers Association of Canada indicate that while demand and transfer prices may have risen, transfer activity itself isn’t up. Through the first seven months of the year, 1,486 brokers have transferred firms, the IDA reports. This compares with more than 3,000 who jumped ship in calendar 2006, and 2,700 who made a move in 2005.

What the IDA’s numbers don’t reveal is who is moving, and why. It’s one thing for a rookie to jump from the firm that trained him to escape a disagreeable branch manager. It’s quite another for an industry heavyweight to decide it’s time to move a large, highly coveted book from one firm to another.

One such advisor to make a move recently is Thane Stenner of White Rock, B.C., who joined GMP’s private-client group earlier this year. Stenner, who has been through a number of outright acquisitions but counts this as just his second voluntary move to a new firm, says it’s not just higher transfer prices that are luring advisors to move but also the culture firms can offer.

In his case, Stenner moved from a bank-owned firm to a relative upstart in the retail business — although GMP is hardly an underdog. With its proven ability to take on the Street’s big players and a publicly traded currency of its own, it offers a couple of the big things advisors are looking for other than money: freedom and equity. (For more on GMP, see page 20.)

“Many of the top advisors I know in this industry are looking for a more entrepreneurial culture, not only to help invigorate them and their teams but that also offers an equity component,” Stenner says. “Ultimately, this should ramp up their productivity and professional growth.”

Holland agrees, saying that the primary factor in luring a broker has to be that the firm provides a business environment in which the advisor believes he or she can succeed. He also cites the opportunity for equity participation as a necessary lure these days.

Switching firms is still no easy chore, but right now firms are paying top dollar. For advisors seeking greener pastures, that should help take much of the sting out. IE