Broker Population in ‘Shocking Decline,’ Expert Says

Dually registered advisors strongest channel, according to Cerulli Survey

Industry insiders are alarmed by the overall decline in the U.S. broker population, despite data released by Cerulli Associates in late August that showed only a moderate pace of reduction.

Overall, there were nearly 338,500 producing advisors in 2004, but that number stood at about 320,400 at the end of 2010, Cerulli data shows. That represents a six-year compound annual growth rate of -0.9%. The most dramatic drop was between 2009 and 2010, when nearly 14,000 brokers left the industry. There has been some growth, though, in particular channels–most notably those that include dually registered advisors.

(Click here to enlarge table)

This yearly growth rate (or decline), however, should improve to -0.5% over the next five years, according to Cerulli. The research group projects that the U.S. advisor population should be about 312,250 by 2015. 

“There’s been a shocking decline in the overall number of advisors–from about 338,000 to 320,000–at a time when Baby Boomers were adding and needing more advice,” said Chip Roame, head of Tiburon Strategic Advisors in an interview with AdvisorOne

chip roameMissing from this data, Roame (left) points out, are figures for growth in the discount broker channel, whose members have capitalized on this overall decline.

The number of wirehouse advisors fell by about 10,000 since 2004 to 50,700 in 2010, while the figure for insurance-affiliated advisors declined by a similar amount over the six-year period to 89,100. In 2015, these groups could number roughly 44,000 and 85,000 respectively.

“The wirehouses and regionals are finding it difficult to replace advisors who retire or those with weaker franchises who've washed out of the business in recent years, said executive-search consultant Mark Elzweig in an interview with AdvisorOne. “It's largely a zero sum game amongst major firms to recruit capable advisors or high-producing teams. The supply is limited.”

Still, Roame says the wirehouse channel continues to dominate the industry when it comes to both assets under management and sales (or fees and commissions) per rep.

Growth Channels

The pure independent-broker channel, which attracted much attention during the financial crisis, actually shrank between 2004 and 2010 from 102,700 brokers to 97,800, when dually registered advisors are excluded. And this figure is expected to drop to 97,000 by 2015, says Cerulli.

Putting dually registered advisors into the IBD data, however, changes this picture. Including them, the IBD advisor headcount grew from 107,400 in 2004 to 110,600 in 2010. In addition, it should hit 114,750 by 2015.

In terms of RIA channel, the number of RIAs who are not dually registered expanded from 15,800 in 2004 to 20,600 in 2010; it could expand to 23,400 in 2015. Including dual registrants, the RIA channel stood at 20,500 in 2004 and 33,400 in 2010; it is anticipated to top 41,150 by 2015, according to Cerulli.

“The traditional IBD model is declining not growing,” said Roame, “and the dually registered [model] is booming.”

Dual registrants, when counted as a separate group (rather than in the IBD and RIA categories), numbered 4,700 in 2004 and 12,700 by 2010 for a six-year annual growth rate of nearly 18%. This category is expected to continue to boom and hit 17,800 by 2015, for a five-year growth rate of close to 7%.   

“Remember that the pure RIA channel has the smallest base, so maybe it grew substantially in percentage terms [at 4.5%],” explained Roame. “But it really only grew by 5,000 advisors over six years and remains the smallest channel in terms of the number of FAs. More interesting to me is the [stand-alone] dually registered channel, which grew 9,000 off a base of 4,000. That’s huge growth. This is the new model of choice in going independent.”

What’s driving this growth? “The objectivity and 100% payout minus expenses of the RIA model make it an attractive one for many advisors,” shared Elzweig. 

Still, he says, the channel may grow steadily but not explosively. “Many brokers like the winning combination of a household brand name and a turnkey wirehouse platform,” Elzweig said. “Big recruiting deals and retention packages will help keep many wirehouse advisors in the fold, as will syndicate offerings, internal bond inventories and access to banking services.”

To go the RIA route, he added, “You need to be able to delay gratification. The real payoff comes down the road when you sell your practice and it is taxed as a capital gains event.”

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