Small and medium-sized independent dealers are having difficulty bulking up and recruiting new advisors because of choppy markets, uncertainty about their future viability and an inability to match the deep pockets of bank-owned firms and large national dealers.

The challenge remains in convincing advisors with larger books of business that less bureaucratic, more entrepreneurial shops offer a superior work environment that simply can’t be matched by the industry’s giants — no matter how big a cheque they write.

Dan Richards, president of Toronto-based financial services consulting firm Strategic Imperatives Ltd. , says mid-sized players in all sectors are feeling the pinch: “There’s room for high-end boutiques and the big players. But, increasingly, the people in between are getting squeezed.”

There are already fast-growing entrepreneurial alternatives for advisors who want to avoid the bank-owned firms and large dealers, including Wellington West Capital Inc. and Richardson Partners Financial Ltd. , both based in Winnipeg; Vancouver-based Canaccord Capital Inc. ; and Toronto-based GMP Private Client LP.

But that doesn’t mean that there isn’t room for smaller players. But it’s just another layer of difficulty that they must overcome.

“[As an alternative employer], you need to take a very hard look at what it is that makes you unique and different, and build around that,” says Richards. “If all you’re doing is the same as everyone else, it’s pretty tough as a mid-sized player. There are no easy solutions. If there were, somebody would have found them.

“You can step back,” he continues, “and ask, ‘Can we make it on our own, or do we have to become part of a bigger organization?’”

And even though it has always been difficult for smaller firms to build their franchises, the current economic environment only accentuates that, says Paul Bates, dean of the DeGroote School of Business at McMaster University in Hamilton and former CEO of Charles Schwab Canada Co.

Advisors jump to smaller firms for several reasons, Bates says: their niche, their reputation and the chance to own a piece of the action. But there are also several reasons why some advisors avoid smaller players like the plague — and one of those is the concern that the firms lack the financial staying power to survive in the long run.

CATCH-22

The catch-22 for many small firms is they want to attract advisors in the first third of their careers, he says. But those advisors need a strong brand behind them to build their businesses.

And, if firms choose to go after advisors aggressively, they have to be careful not to dangle too many equity carrots in front of potential recruits. “You can only give away your equity so many times,” Bates says. “You have to be judicious of the folks you go after with an offer of participation. It’s hard to build a business — a lot of people don’t realize how hard it is.”

With the market’s soft performance since November, advisors are more reluctant than ever to cross the Street because they’re focused on navigating their clients through the current storm, says Guy Bieber, CEO of Winnipeg-based Bieber Securities Inc.

In addition, with smaller firms’ limited stable of advisors, they have to be sure each new addition is a near-sure bet, he says, because the wrong hire can be a serious drag on the bottom line and corporate culture.

“It’s all about the right people,” Bieber says. “If you don’t get them, you don’t want to do anything. When you end up with the wrong people, things don’t go well.”

Bieber Securities, which is looking to broaden its base from 12 advisors in Manitoba to a presence across Western Canada, is having no shortage of discussions with potential candidates. But the advisors are not getting past the first “smell test.”

“We’re constantly talking to people,” Bieber explains. “We’ve made mistakes hiring in the past, so we’re very particular. We don’t need the biggest producers; we want the small- to medium-type producing guys with whom we could tinker and increase their production.”

Philip Armstrong, CEO of Toronto-based Jovian Capital Corp. , parent company of both investment dealer MGI Securities Inc. and mutual fund dealer Rice Financial Group Inc. , believes the recruiting tide is turning.

“There are people on the Street who are looking to move,” he says. “The environment is a lot friendlier for companies that are recruiting than it has been for the past two years. When the markets were good, everybody was happy to stay where they were.”

@page_break@Armstrong says recruiting efforts have been “pretty aggressive” at both of its dealer subsidiaries. Rice, in particular, is looking to expand in its traditional strongholds of Manitoba and Saskatchewan, as well as in Ontario, where it has a relatively limited presence.

“We’ve had a couple of initiatives in Ontario and picked up some smaller branches there,” Armstrong says, noting Rice’s new president and CEO, Dave Velanoff, is working his contacts in the province from his home base in the Kitchener-Waterloo area of Ontario.

Armstrong says Rice has always wanted to expand its presence in Ontario because of the potential that lies in the province, given its 12 million inhabitants.

A FEW OFFERS OUT

“We want Rice to be a national firm,” Armstrong says. “Expansion into Ontario is the obvious thing to do. Our footprint here is pretty small.”

MGI, which has 37 advisors in four offices across the country, has “a few offers out there,” Armstrong says. He’s optimistic that some of them will be accepted by advi-sors attracted to the allure of Jovian shares and payouts that are “much better” than what the bank-owned firms can offer.

“That only goes so far, though,” he says. “People really have to feel comfortable working in a small-firm environment.”

Jacquie Boddaert, CEO of Toronto-based Monarch Wealth Corp. , says it’s difficult for firms to differentiate themselves in the financial services business when faced with never-ending consolidation and pressure from resources-rich large firms.

“For us, it’s how we assist advisors in growing their businesses through systemizing it and finding an approach with clients that’s more value-added,” she says. “That includes doing financial planning, which leads to a much broader relationship with clients. You’re not just managing their investments.”

The Toronto-based Monarch hired a full-time recruiter eight months ago, Boddaert says, and she’s optimistic that if current trends continue, the company’s goal of tripling its current business — 50 advisors and $1 billion in assets under administration — in three years will be reached.

However, Bates points out, growth via recruitment is never steady. Good business managers must also focus on minimizing fixed expenses so that they’re not hamstrung and are able to strike at a moment’s notice.

“You have to be ready for the opportunities when they come along,” Bates says. “At the same time, you have to make sure the lulls don’t kill you. People often set out to do the right thing with nice offices and good equipment. But if the growth doesn’t come and the dealers are pushed up against the wall, sometimes they’ll compromise on the kinds of people they’ll bring on.”

Boddaert agrees. She says a firm’s recruiting strategy must include the provision that there is no quick fix. “It’s like building a client base, one by one,” she says. “We’re building advisors who want to join us, one by one. It’s a long-term build.”

One of Monarch’s most successful recruiting tools is referrals from its current advisors. “It’s getting out there,” Boddaert says, “an understanding of what people might be missing at their current dealerships, and what we might be able to do to fill the gaps.” IE