The continuing market uncertainty has persuaded some brokerage firms to do some spring cleaning in the hopes of bringing in new talent and bigger books at the expense of lower-producing advisors.

The trend has spread throughout the U.S. and is now making its way into Canada, says Alois Pirker, a senior analyst at marketing research company Aite Group LLC of Boston: “Many firms have decided to use the financial crisis to ‘rightsize’ their broker force. With these reductions, firms try to increase the average assets and revenue per broker and, therefore, are particularly targeting the lower-producing brokers.”

That’s exactly what Vancouver-based Canaccord Capital Inc. did in early April, when it let go 75 low-producing advisors in its private-client services group. Although many firms have been making cost-cutting measures during this difficult time, Canaccord says that the layoffs were not made in order to save money; rather, they were part of a strategic process put in place to rebuild the firm after the impact of the asset-backed commercial paper crisis. (Some 1,500 of Canaccord clients held $269 million in ABCP, and the firm has reported spending $59.5 million to reimburse small-investor clients who held less than $1 million of ABCP.)

“This difficult decision was taken in order to support our commitments to prioritizing our clients, to recruiting investment advisors with larger books of business and to continue to grow our asset base,” said John Rothwell, head of private-client services at Canaccord, at the time of the announcement. “It is by no means a permanent staff reduction, but a demonstration of our diligence, responsiveness to market opportunity and commitment to client service.”

In an effort to retain all clients and their assets, the firm offered departing advisors the opportunity to take part in the Canaccord Advisor Transition program, which partners these advisors with those at the firm looking to acquire departing brokers’ books of business. As well, the program provides bridge financing to advisors who want to buy books of business.

Oded Orgil, Canaccord’s senior vice president and director of corporate development, joined the firm in January and is in the midst of heading up an aggressive growth campaign for new advisors.

“We have a great value proposition here and we are extremely well positioned to go out there and grow and search for great advisors from a variety of places, whether it be the bank-owned firms or an independent operation,” Orgil says. “We are certainly looking to attract 20 to 30 high-end advisors over the next 11 months.”

Over the next five years, Canaccord’s strategy is to grow to $20 billion in assets under administration from $9.5 billion today and to have 450 advisor teams, up from 320 teams today, Orgil says. The firm will be looking for competitive recruits from other firms and will focus on growing its overall fee-based business and wealth-management business.

“That’s not to say we will ignore individuals in the traditional or transactional business,” he says. “Our stance in the market sector is looking for individuals who can articulate their value proposition and have a process in their business.”

Toronto-based Bank of Montreal is in the process of letting go approximately 100 investment advisors at its retail brokerage unit, BMO Nesbitt Burns Inc. Only a few months ago, the firm announced that it trains approximately 100 rookies a year and said it had no plans to scale back any time soon.

The layoffs represent approximately 7% of the brokerage’s 1,300 advisors. When asked about the reduction in the sales force, the firm replied that it does not discuss specific employee matters, but did say that Nesbitt is always examining its business model to ensure it is effectively meeting the needs of its clients — and that it is continuing to recruit advisors actively.

“One way we look to define ‘great client experience’ is to upgrade our sales force continually,” says Paul Gammal, director, external communications, at BMO. “We are actively recruiting experienced, high-quality investment advisors and high-potential advisors to our well-regarded training program.”

Nesbitt’s decision to reduce its advisor head count is in line with the latest activities at some of its U.S.-based counterparts. For instance, New York-based UBS Financial Services Inc. let go approximately 2,200 employees in its wealth-management business, including a number of advi-sors, earlier this year. UBS says it has not been hiring direct replacements for those it has let go; however, the firm had already been aggressively hiring since this past autumn.

@page_break@“We have been concentrating our hiring efforts on the top two quartiles of financial advisors,” says Kris Kagel, director, media relations, with UBS. “We have been hiring high-producing advisors since the fall, when there was so much turbulence in the market and at some of our competitor firms.”

But Pirker believes a good chunk of those let go at UBS were low-producing advisors and were replaced with higher-producing advisors: “They have hired a couple of hundred high-producing advisors,” Pirker says, “and the firm paid [those advisors] very handsomely in order to get them to come over.”

Similar strategies have not occurred at Toronto-based UBS Cana-da, as that firm works on a private-banking model.

Although not as many Canadian firms have announced the restructuring of their advisory base with the departure of its lower producers as has happened south of the border, Pirker says, as more firms start to see positive results with this strategy, competitors will have to follow suit: “When we are talking brokerage industry, the firms in the U.S. sort of set the trend and then other firms follow because they can’t compete with them. So, I think that’s what is happening right now, in particular, in the U.S.”

Some Canadian firms, however, are hanging on to their advisors despite reduced production levels and see the market downturn as the perfect opportunity to grow.

For instance, Mississauga, Ont.-based Edward Jones is in the midst of an aggressive recruitment effort in the Greater Toronto Area and the surrounding Golden Horseshoe region. The firm plans to hire 250 financial advisors and 250 branch office administrators within the next five years.

“Our philosophy is we see training as an investment, not as an expense,” says Gary Reamy, principal and head of Edward Jones’ Canadian division. “We know there are millions of underserviced investors in Canada. And even though the stock markets may be down, we are going to continue to add and train new financial advisors.”

Although Edward Jones does see some advisors coming over from other firms with their own books of business, this only accounts for approximately 15% of the new hires. The remaining 85% of advisors who join the firm are rookies to the financial services business who were successful in their past careers.

Edward Jones is also recruiting for offices across the country. The firm currently has 660 single-advisor branches, 30 of which have been added since January. IE