Casey Knight of Encore Search Partners in Houston said he was careful to tell his team of industry recruiters what to say about a fast-circulating notion that Osaic was about to buy its broker-dealer rival Cetera Financial Group.
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Specifically, the recruiters were instructed to inform any advisors they called that the pending sale was only a rumor. It was a rumor, though, that Knight says he had no reason to disbelieve. That was especially true after he heard it confirmed from what he deemed to be several credible sources, including a “higher-up” employee of a brokerage firm that he declined to identify.
So when his team of roughly 30 recruiters started calling Cetera advisors to ask if they’d thought about what a possible sale could mean for their careers, Knight felt confident they were acting on solid information. The result, though, was a cease-and-desist order from Cetera telling them to cut it out.
Knight is unrepentant.
“Could we have been wrong about the actual acquisition happening? Yes,” said Knight, the president of the financial search team at Encore Search Partners. “But were we right to believe the information that was shared with us? Absolutely.”
Other recruiters cry ‘out of bounds’
Defensible or not, Knight and his team’s recruiting campaign has reaped a backlash from other industry recruiters bemoaning what they deemed not-uncommon unscrupulous practices in their line of work. Phil Waxelbaum, the founder of the advisor-recruiting firm Masada Consulting, wrote a lengthy LinkedIn post complaining about “a slimy recruiting pitch designed to create discomfort.”
Waxelbaum said he was told by various Cetera advisors that the recruiters who called them said, “I wanted to get your opinion on your firm being taken over by Osaic.” Waxelbaum said Cetera executives were quick to get on the phone with him and other industry recruiters to deny the rumors. A spokesperson for the firm said, “Cetera does not comment on legal matters.”
Waxelbaum said he separately heard from Osaic advisors who said they had been contacted by recruiters asking, “How do you feel about your firm doubling in size?” Osaic has more than 11,000 advisors and Cetera has roughly 12,000 advisors. Osaic declined to comment for this article.
The obvious goal, Waxelbaum said, was to make Cetera and Osaic advisors feel threatened by the supposed sale and incite them to consider taking their clients elsewhere. Any recruiter who helped with the resulting moves could expect to receive a healthy fee from the recruiting firm.
Waxelbaum said recruiters thus have a monetary incentive to make the industry seem more prone to instability and disruption than perhaps it really is.
“When they can’t find a problem, they may creatively come up with one,” he said. “And that’s how this happened.”
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How LPL’s Commonwealth deal has advisors feeling uneasy
One of the biggest goldmines for industry recruiters this past year did result from a big acquisition deal: LPL Financial’s purchase in August of its former broker-dealer rival Commonwealth Financial Network. Firms like Raymond James, Kestra and Cambridge Investment Research — as well as Osaic and Cetera — have all managed to swell their headcounts with former Commonwealth advisors looking for a home besides LPL.
Many of the defectors have said in interviews they were assured by Commonwealth executives, practically up to the eve of the purchase, that the firm would never be sold. The recruiters calling Cetera and Osaic advisors were obviously playing on anxieties that something similar could happen with their two firms, Waxelbaum said.
“In order to inspire lead flow, some recruiters said, ‘OK, this Commonwealth thing turned into a bonanza.'” he said. “If we could just get a little bonanza by people believing something like that — whether it’s going to happen, not happen, doesn’t matter — as long as they think the risk is there, they may give it consideration and look at moving.”
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Where many recruiters draw the line
For many industry recruiters, the Osaic-buying-Cetera rumor was an egregious, but not totally uncharacteristic, episode in their line of work. Frank LaRosa, the founder and CEO of the recruiting firm Elite Consulting Partners, said there is “some logic” to drawing advisors’ attention to the frequency of merger-and-acquisition deals in the industry and advising them to at least consider their options to join firms that could perhaps offer more stability.
But to induce that sort of consideration by spreading unverified rumors — even if you specify the information being offered is indeed only a rumor — is to go a step too far, LaRosa said.
“It’s very unprofessional,” said LaRosa, who’s also been vocal on LinkedIn about the sale rumors. “To say, ‘We are calling to get your comment about rumors that Osaic is buying Cetera’ — it’s a bit like yelling ‘fire’ in a crowded theater. Even if you say, ‘this is a rumor,’ you are still helping to create the rumor.”
Waxelbaum said the episode shines light on a recruiting industry that lets virtually anyone in and that imposes virtually no conduct standards on those who join. Waxelbaum said the sole qualification a person must meet to become a financial services recruiter is to be able to answer “yes” to the question: “Do you own a telephone?”
Even with no official code of conduct, recruiters rarely go so far as to spread unfounded rumors about supposedly impending industry transactions. Usually the worst consists of conjuring up reasons for advisors to be unhappy with their existing firms — even if they are unlikely to be any more satisfied when they move, Waxelbaum said.
It’s the job of ethical recruiters to remind them no situation is going to be perfect.
“There are any number of advisors that I’ve talked to over the years — I mean, hundreds — where I’ve said, ‘I’ve got to tell you something. You may be unhappy right this minute because somebody said no to you, or you hate them, or whatever. But truth be told, there’s no reason to leave,'” Waxelbaum said.
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‘Getting the information first is a privilege’
Cetera’s cease-and-desist order to Encore Search Partners didn’t stop at calling on the recruiting firm to not spread rumors about a pending purchase by Osaic. It also demanded that Encore Search Partners stop telling advisors that the firm’s CEO, Mike Durbin, planned to leave soon.
Knight said his recruiters had actually only reminded Cetera advisors that the firm’s chief operating officer, Tom Gooley, had announced his intention last month to retire. Somehow, the message was garbled by the recipients, Knight said.
Knight said he thinks part of his job is to bring advisors industry information before it becomes common knowledge. That gives them an opportunity to act on it before their competitors.
“Getting the information first is a privilege,” Knight said. “And everything is a rumor until it is official.”
Knight said he was far from the only industry recruiter who was close to certain at one point that Cetera was buying Osaic.
Another recruiter who heard the exact same rumor, for instance, was Jeremy Belfiore, the owner and CEO of Trusted Visions Placement and Consulting. Belfiore confirmed that the whispers of an Osaic/Cetera merger at one time were, “hot and heavy … I was getting it from many different angles.”
Belfiore, who’s also posted extensively on LinkedIn about the rumored Cetera purchase by Osaic, faulted Knight for trying to stir up panic. Even if the rumor was true — Belfiore said Cetera executives have assured him it’s not — advisors should feel no pressure to rush out the door.
Acquisitions typically take many months to go through, giving advisors plenty of time to decide if they want to stay or go somewhere else. Recruiters have a responsibility at such times to act as a reassuring force, Belfiore said.
Knight and his team, by contrast, “were going out and saying this is a done deal we need to get in front of this, almost as a scare tactic,” Belfiore said.
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Do broker-dealers have a responsibility to halt unethical recruiting?
Belfiore said all the blame can’t be laid on recruiters. Broker-dealers and other wealth managers have the ability to choose which recruiting outfits they want to work with.
“We as third-party recruiters are almost representing these broker-dealers,” Belfiore said. “And if a third-party recruiting firm’s values don’t align with theirs, then they can simply choose to not have a contract with us.”
Waxelbaum said everyone in the industry could also stand to take the next hot rumor making the rounds with a little more skepticism. With Osaic’s supposed plans to buy Cetera, the economic realities of the deal should have been enough to raise questions.
He noted that LPL Financial paid $2.7 billion for Commonwealth, a firm with roughly 3,000 advisors and $305 billion in client assets at the time of its purchase.
“If you only assign a multiple comparable to what Commonwealth received, Cetera would sell for between $13 billion and $15 billion,” Waxelbaum said. “So where is Osaic coming up with the liquidity or the lines of credit appropriate to make that trade? Where’s the funding coming from to buy another firm?”
