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Broker-Dealers: Is Smaller Better?

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A funny thing happened as the nation recovered from the financial crisis. As the industry’s largest firms flirted with bankruptcy, once-sleepy regional broker-dealers suddenly became attractive to advisors and, thus, asset managers.

These firms grew to a high of 38,249 advisors in 2009. Although the figure slid to 34,359 in 2010, it still represents a three-year compound annual growth rate of 1.3%. And, while this figure seems low, it stands in sharp contrast to an industry that actually shrank over the same timeframe. In all, regional BDs have increased their share of financial advisor assets under management from approximately 13% in 2007 to nearly 15% in 2010.

“Regional BDs are currently well regarded by both their employees and their clients,” Bing Waldert, director of Cerulli Associates, said in a ststement. “Advisors appreciate the importance of wealth management at these firms and Cerulli data reveals that among all distribution channels, investors who name regionals as their primary providers have the highest level of satisfaction.”

Not surprisingly, having recognized the growth regional BDs have experienced, asset managers have refocused their efforts on these firms. Working with regional BDs is not much different than working with any other major BDs, Waldert said. In many cases, regionals have put into place research teams to review and recommend potential asset managers for their advisors. According to Waldert, if an asset manager has specific resources dedicated to working with the professional buyer, major regional BDs should be worked into their rotation as well.

Waldert also cautions that in many cases, regional BDs have outsourced (or are considering outsourcing) the technology for their managed account programs to a third-party vendor such as Envestnet. As a result, asset managers may need to seek placement on an external platform if they wish to do business in specific firms. 


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