Tom Bradley, president of TD Ameritrade Institutional, praised fee-only financial advisors in a keynote address at the National Association of Personal Financial Advisors annual conference Thursday morning in Salt Lake City.
“I have watched your organization and the fee-only movement grow,” Bradley told audience members. “NAPFA is on the forefront of change in the financial services industry, something for which you should be very proud.”
Bradley began by noting that as of May 18, 2011, the S&P 500 had recovered 98% of its losses from its low in March of 2009. While noting how hard it is to attempt to time the market, he said he is “continually amazed at how well investors who moved to cash were able to time the bottom of the market” to applause from the audience.
He then moved to a discussion of the performance of the RIA channel both during, and since, the economic downturn. He reported that 73% of advisors say they are adding clients. At the same time, the same advisors report only a 5% loss rate when it comes to their client retention.
“I like to look at how the independent channel is doing overall, but I also like to see how the RIA channel stacks up against its competitors in other channels,” he continued. “While RIA assets are up 39%, wirehouse assets are only up 4%. This clearly shows investors want a fiduciary advisor as opposed to a salesperson. But just as I get excited about these results, other concerns pop up.”
He noted a recent study from Cerulli Associates that found 63% of investors with regional broker-dealers and wirehouses believe they are in a fiduciary relationship with their advisor. But, conversely, only 13% of broker-dealer and wirehouse reps report having a fiduciary relationship with their clients. Cleary, he said, education on this issue still needs to happen.
He then moved to a discussion of breakaway brokers, and TD Ameritrade’s success in attracting them, which said was indicative of the movement overall.
“We took on 215 so-called breakaway brokers in 2008,” he said. “In 2011, we estimate we will take on 380. What does this mean to you? Increased competition; most advisors want to do the right thing. They are looking at this model and saying, ‘I’m already acting in a fiduciary manner. Why not make it official?’”
In 2008, RIAs firms “battened down the hatches” in their back offices in order to survive the economic crisis. They became much more efficient in that area of their business. This resulted in excess capacity. Bradley said they are now taking on breakaway brokers to fill that capacity. As a result, the breakaway brokers are bringing in new revenue, but expenses aren’t going up, and advisor firms’ margins are widening.
A brief discussion of the coming wealth transfer then followed, in which he said the United States will experience an estimated $18 trillion asset transfer from the baby boomers to Generations X and Y. He implored the audience to realize that most of the younger