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Industry Spotlight > Broker Dealers

Independent Business Model Offers Best Earnings Potential: Fidelity Survey

By John Sullivan

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The majority of brokers and advisors see the independent model—registered investment advisor, independent broker-dealer or dually registered—as more attractive today and offering the greatest earnings potential, according to Fidelity Investments’ latest Broker and Advisor Sentiment Index survey.

The survey, released Thursday, found that among brokers and advisors, more than half (56%) indicated that the independent model had become more attractive in today’s economic environment, while nearly 70% expected the independent model to offer more earnings potential than any other business model over the next 18 months.  Among the 18% who believe the independent model is less attractive, the No. 1 reason is because of the expected costs of complying with impending regulations.

Sanjiv Mirchandani of Fidelity“From new regulations to changing investor attitudes and behaviors, it’s clear that the market downturn of 2008-2009 has had significant and far-reaching implications on brokers and advisors,” Sanjiv Mirchandani (left), president of National Financial, a Fidelity Investments company and the nation’s second largest clearing provider, said in a statement.

“Yet, despite these growing pressures, we were encouraged that brokers’ satisfaction jumped, something that we believe is a reflection of their resiliency, flexibility to meet new challenges and continued focus on meeting the increasingly demanding needs of their clients,” continued Mirchandani.

The independent segment continues to gain in popularity in terms of headcount and assets.  According to the Fidelity survey, 17% of brokers have switched firms within the past three years.  More than two-thirds (69%) of recent switchers say they joined an existing firm, with the largest percentage choosing an independent broker-dealer.

Among these “switchers,” the top three reasons for moving to another firm are: “unhappy with changes in the firm’s direction,” “wanting more independence” and “wanting a better

working environment.”  Interestingly, the No. 1 reason for switching in 2008 was the desire for a “better career opportunity.”

Brokers and advisors also appear to be increasingly effective in taking more assets with them when they switch firms.  On average, those who recently switched firms report bringing 70% of their client assets to their new firm, up from 61% in 2008. The No. 1 reason for not transferring all their client assets was because it was the advisor’s preference.

Overall, 6% of brokers surveyed indicate they are likely to switch firms within the year.  Among these “likely switchers,” the independent broker-dealer and RIA segments are the most preferred channels, followed by regional and national brokerage.

Eighty-one percent of likely switchers state if they were to leave their current firm they would join an existing firm, compared to 19% who say they would start their own firm.  As with the 2008 survey, the top reason brokers give for considering a switch is “better pay.”

While the No. 2 reason in 2008 was “more independence,” this year’s No. 2 reason for considering a switch is “not happy with the changes in their firm’s direction.”

“While joining or starting an RIA continues to be an attractive choice when going independent, we also are seeing independent broker-dealers successfully attract breakaways,” said Mirchandani.  “These firms can be appealing to many brokers as they often support both fee and commission business, while also helping to alleviate some of the regulatory burden.”

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