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Top 12 Challenges for Independent Broker-Dealers

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Dennis Gallant’s session on the major challenges affecting the independent broker-dealer industry had the full attention of senior executives in the audience.

The presentation, titled “Attacking the Challenges of Running an Independent Firm Today” and delivered on Tuesday at the FSI OneVoice Conference in San Diego, focused on the results of a survey deployed by FSI prior to the conference. The survey sought to identify and rank by importance the issues with which broker-dealers are grappling.

Gallant, proprietor of Gallant Distribution Consulting, began by arguing that independent broker-dealer advisors are “the best advisors in the market” and independent broker-dealers themselves are superbly positioned for growth.

The IBD channel provides the greatest flexibility for advisors to meet client needs, he said. They are more planning-oriented; are the best practitioners in delivering retirement income; lead the market in serving more retirement income clients; serve a broader range of client affluence than peer channels; and are more innovative, with the pool or bucket philosophy for income management developed out of the IBD marketplace.

“The issue is that the model was designed in the days of execution and trading,” Gallant said. “How do you effectively support all the things an advisor needs today in order to compete? Wirehouses are under the same pressures and have decided to focus on mainly high-end advisors, which is bringing in revenue now but is not sustainable long term.”

Gallant noted the growing demand for advice and the need to recover and rebuild portfolios. Investors are seeking assistance and are unsure where to turn to for help. The complexity of consumer needs favors using an experienced advisor, he added, and a supply and demand imbalance is occurring in conjunction with a shrinking pool of skilled advisors.

“Independent BDs are the largest advisor channel by number of advisors,” he said. “Fully 71% of IBD firms surveyed believed independent BDs will continue to grow and gain market share from wirehouses and other channels.”

He then revealed the top IBD challenges, ranked in descending order of importance according to the survey’s results:

  1. Regulatory environment
  2. Advisor recruitment
  3. Achieving profitability
  4. The market/economic environment
  5. Delivering effective technology solutions
  6. Advisor retention
  7. Satisfying advisors
  8. Retaining qualified home office talent
  9. Building and maintaining infrastructure
  10. Growing competition
  11. Attracting qualified home office talent
  12. Clearing firm support

“I’m not surprised by any of these. The key is to identify the ones you can change and influence,” he said. “I don’t see a let-up in the regulatory and recruiting environments anytime soon, but advisor retention and attracting and retaining qualified home office can be effectively addressed. The problem is that they were way down on the list.” The economics are shifting from the recruiting of advisors to the retention of advisors, he added, and attracting and retaining qualified home office staff directly impacts advisor retention.

Moving to technology, Gallant noted the horse race between firms, but said the question becomes how their advisors are using it. Are they getting all they can from the investment?

“The level of advisor production directly impacts profitability. The home office constantly releases new technology, but advisors can’t use it, so they’re not getting all they could.”

As for recruiting, “no one is really saying recruiting is meeting expectations.”

“My big thing is this,” Gallant said, referring to advisory service and support. “It ranks forth as a priority and on actions taken. Firms are expanding their corporate RIA resources, but getting advisors to transition to fees is still a challenge. They are expanding their platforms and evaluating the benefits and trade-offs of proprietary, private label and TAMP efforts. The industry has focused on creating an advisory offering. It now needs to focus efforts on helping advisors best use it.”

None of the broker-dealer respondents are making what Gallant called “monumental shifts.”

“They are incremental changes and they’re not making a lot of headway,” he concluded. “If I do this survey a year from now, I feel I’ll get the same answers.”


Check out complete conference coverage at AdvisorOne’s FSI OneVoice 2013 enhanced landing page.