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Schwab Survey Finds Big Majority of IBD Reps Would Go RIA

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Schwab Advisor Services released Tuesday the results of a survey of independent broker-dealer and insurance company reps that found that a large majority of respondents liked the idea of starting or joining an RIA firm.

Specifically, when asked, “How appealing is the idea of becoming an independent registered investment advisor at some point in the future?” 86% of the 157 respondents answered by saying they found the idea “very” (28%) or “somewhat” (58%) appealing.

The online survey was conducted on Schwab’s behalf by an independent survey firm, Koski Research, between Jan. 5 and Jan. 21, 2011. Respondents came from a wide range of different sizes and business models of independent BDs and insurance companies, a Schwab spokesperson said.

In a pre-release interview on March 24 discussing the survey’s findings, Bernie Clark, head of Schwab Advisor Services, argued that brokers who “migrated to IBD models, long ago or in the last two years, now they’re saying it’s time to go independent.”

That goes for wirehouse advisors as well, Clark (left) said. “In 2008,” he said, when wirehouse advisors were thinking of leaving due to the troubles with the big firms, “it was natural to gravitate to an existing platform where they could bring their books of business.” Once they got to an independent BD, however, Clark believed “ they became students of the independent model.”

In the statement accompanying the survey’s findings, Nick Georgis, a VP with Schwab Advisor Services, the largest RIA custodian with some 6,000 affiliated advisors, said that Schwab “saw a 45% increase in the number of advisor teams transitioning to independence from IBD firms in 2010 compared to 2009.”

When asked in the survey which “environmental factors” would make those BD reps more likely to move to an RIA model, a “friendlier economic and tax environment for small business owners” was the top factor—at 45% of respondent—followed by “an improved overall market and economic environment,” at 43%.

Some wirehouse brokers may be prompted to leave by the changing ownership of the big


wirehouses, according to Clark, who prediced that “we’re not done with the movement of accounts, which is very embarrassing” to those wirehouse brokers, who have to explain to their clients why their brokerage statements have yet another new name appearing on the top of their statement.

Moreover, Clark says that “Even the brokers now are starting to talk about the simplicity of fees versus commissions,” with some of that new realization “rooted in distrust” of their parent company. The brokers know that their firms are “making money on products,” he said, but worry that they “may not even know about it.”

When asked  in the survey if they were to choose the RIA model whether they would prefer to join an existing firm or run their own, 58% said they would join an existing RIA firm, and 34% said they would start their own firm (see chart below). “When an individual joins an existing firm,” Clark commented on this finding, “you’re partnering with someone, there’s more more synergistic value.”

Clark wondered in the interview about the appropriateness of the independent BD model. “if I’m entrepreneurial,” he said, referring to a broker considering independence, “why go with an LPL—to a halfway house?” With the improvements in the “technical programs to run their own businesses,” offered by custodians, he said, “maybe you don’t need the interim step any longer.”

Clark suggested that “this movement toward independence” is still in its “early days,” but it represents a “sea change” not just in advisor affiliation models but in how consumers will invest in the future. Those investors, he says, want their brokers to move toward the independent model.

He also warned, however, that we haven’t seen the last of the wirehouses, and thinks it’s possible that one or more wirehouses will “declare that they’re independent” taking a “join us rather than beat us” approach. “I don’t know if they can ever unravel themselves,” Clark concludes, “but the trend is in that direction.”

The survey also found that IBD advisors see a number of benefits to joining or starting an independent RIA firm, including a greater ability to develop and grow their own business (43%), deliver more customized solutions (42%) and hand pick their own team (41%).


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