Broker-dealer presidents are fierce competitors, and while they may cooperate in areas of advocacy—as they do notably as members of the Financial Services Institute—they all want nearly the same representatives. That’s their real business, after all: recruiting new reps, just as reps’ real business is recruiting new clients.
For five years now, Investment Advisor has solicited independent broker-dealer leaders for their opinions on the challenges facing their firms, and the main challenges facing their reps, in both the shorter term and the longer term.
We present the findings of this year’s survey in the pages that follow, but with five years of data in our hands, we think we can discern a few patterns as well.
Here’s an example: Each year, we asked the presidents which association or organization best represented the IBD industry’s interests, especially in the nation’s capital. In the first few years, FSI was cited first by 80% of respondents, SIFMA and FINRA were in the high single digits and the FPA was even mentioned by 5% of the presidents. This year and last, however, the now 11-year-old FSI is in the high 80% range, while FPA was cited by exactly zero presidents. Other answers have changed over the past five years, and we invite you to visit ThinkAdvisor.com to see additional charts on what has changed in our Broker-Dealer Presidents Poll.
1. What issue do you feel is the most challenging to your firm businesswise in the short term (next 18 months)?
Short-Term Broker-Dealer Challenges
Two numbers jump out of this year’s Presidents Poll. Thirty-two percent said that dealing with the evolving Department of Labor fiduciary proposal is the most challenging short-term issue they face; in 2014, the first time we asked the question, only 14% listed it as most challenging.
Not surprisingly, retaining and recruiting reps is the biggest issue facing our IBD presidents, though that percentage has more than doubled—from 21% in our first poll in 2011 to 45% this year—in the five years we’ve asked the question. By contrast, zero presidents named the economy and markets as most challenging, compared to 9% in 2011 and 16% in 2012.
2. What issue do you feel is the most challenging to your firm businesswise in the long term (next three to five years and beyond)?
Long-Term Broker-Dealer Challenges
The same two longer-term business issues for BDs have taken top honors in all five years of the Presidents Poll, but they’ve swapped places. Increased compliance costs was the biggest issue in the 2011 poll—48%—while technology investing was in second place then at 23%. In our 2015 responses, technology and compliance are in a statistical dead heat: 37.7% for both issues.
With industry consolidation picking up, in the last two years we’ve asked if maintaining independence was a top challenge for BD leaders. Apparently not: 9% chose it as a top challenge in 2014, but only 3.3% did so in 2015.
3. What issue do you feel is the most challenging to individual reps in the short term (next 18 months)?
Short-Term Challenges for Reps
Finding new clients has been the top challenge for reps in the short term every year in the poll, starting with 40% in 2011 and peaking at 47% last year before declining to 37% in 2015. In 2013, we started asking if dealing with the prospect of rising rates was a top challenge. Our poll found that to be a declining concern among IBD presidents: from 27% in 2013 to 19% this year.
4. What issue do you feel is the most challenging to individual reps over the long term (next three to five years and beyond)?
Long-Term Challenges for Reps
Succession planning for individual reps was cited as the top long-term challenge by 28% of presidents in our first year of the poll, peaking at 41% last year before declining to 33% this year. But our presidents are less sanguine this year about reps deciding on their optimal business model—from commission-only to fee-only—than in previous years. That issue was cited as a top challenge for reps by only 10% of presidents this year, down from 22% in 2011.
5. Which industry association/entity do you feel is most essential to advancing your point of view, especially in Washington, D.C.?
The Best Advocates for the IBD Model
As previously mentioned, the Financial Services Institute has been the big winner in all the years of the Presidents Poll when asked which industry association or group best represents the independent broker-dealer point of view, especially in Washington. While SIFMA, FINRA and other groups have maintained their following in the mid to high single digits among our polled presidents, the Financial Planning Association has fallen from a high of 5% in 2012 to zero choosing the FPA as its best advocacy advocate.
6. Are you confident that the independent broker-dealer model will remain viable?
Viability of the IBD Model
Despite consolidation among independent broker-dealers and the challenges cited in the poll—some evergreen, such as increased costs for compliance and staying up-to-date in technology—our presidents remain optimistic about the IBD model. In the first few years of the Presidents Poll, a small percentage of presidents—peaking at 3.4% in our first poll in 2011—said they were not confident in the continued viability of the IBD model, but this year and last, every president polled said they remained confident. Why? Perhaps Dale Brown of FSI, which has shown financial and advocacy strength in Washington and the states, put it best. In an interview for the IA 35 for 35 this year, Brown said he doesn’t see any change in the “critical role our members play in helping clients save for retirement and pay for college.” Independent broker-dealers and RIAs “will continue to be the best choice for Main Street.”