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2 Big Reasons Breakaway Brokers Have a Bright Future: TDAI’s Dorsey

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There are two different ways to go independent, according to Pete Dorsey, managing director of sales at TD Ameritrade Institutional, each with their own pros and cons: Advisors can start their own firm or join an established independent advisory firm.

“The trend [of breakaway brokers] in the past five years has been exceptionally strong. It’s fueled a lot of our growth,” Dorsey said in an interview at TD’s annual conference on Friday. “As we look out for the next three to four years, retention packages are going to expire at all-time highs between now and 2018. That gives me a lot of confidence that the trend is going to continue, at least for the short- to mid-term.”

The bulk of TD’s business is from advisors hanging their own shingle, he said, but about 25% of new advisors at TD Ameritrade are joining an existing firm. “Five years ago, that didn’t really exist. I think the emergence of that model, the aggregated model or national RIA, whatever you want to call it, is playing a significant role in fueling that breakaway business.”

Dorsey said that according to TD’s last RIA sentiment survey, 53% of advisors’ business is coming from clients leaving wirehouses. “You have this convergence of two different forces; one, the retention packages are expiring at the highest rate they ever have, and you also have the attrition of the end client making the move to independence as well. Put those two forces together and from a breakaway broker standpoint, the future looks pretty bright.”

Dorsey said he’s seeing more Gen X and Gen Y advisors join the business too. “They’re seeing the same numbers we do. They’re going to control $20 trillion by 2020, so in the next five years. It’s a massive opportunity.”

Those younger advisors can be successful advising their peers, he added, who are “starting to accumulate wealth. They need advice and they’re seeking the Gen X and Gen Y advisor to help them with that.”

Part of what Dorsey and his team are trying to do for advisors is to help them figure out “what they’re trying to accomplish and what’s a better fit for them. We have those conversations, ‘What do you do on a day-to-day basis? What do you get paid to do?’ Often times, those two things don’t necessarily line up.”

That’s where the practice management group comes in to help advisors grow efficiently — and profitably, Dorsey said.

For example, “It doesn’t make sense to bring on a million-dollar account at 100 basis points, if it costs you $11,000 to service that business.”

“The advisory space isn’t an AUM game anymore,” Dorsey said. “It’s a revenue per client, profit per client game. Getting to a certain dollar amount in AUM for the sake of getting there isn’t necessarily the best way to look at it.”

More efficient firms, even if they are smaller, pay off in the eyes of the end client, too. “An end client is going to see more stability in a $1 billion firm than a $500 billion firm.”

Dorsey said the biggest request TD gets from advisors is for help with growth. “Before you tackle the growth issue, you need to make sure you have the operational efficiency in place to make sure you can handle that growth. The biggest disservice you can do to your clients is to go out of business.”

Dorsey urged advisors to focus on creating that operational efficiency and putting the right people in the right roles before turning to growth goals.

Technology can help build that operational efficiency. For example, Dorsey pointed to electronic account openings. “When you have DocuSign and LaserApp and technologies like that, it’s making the onboarding process more frictionless.”

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