The ranks of breakaway brokers moving to the registered investment advisor channel may very well increase over the next year or so, according to Scott Collins, director of broker independence at TD Ameritrade Institutional.

TDAI’s data shows that many advisors – who are in the independent broker-dealer or wirehouse channel and who are considering the independent RIA route – plan to make a move by the end of the year.

TDAI looked at data from its “Exploring Your Independence” tool, which is an assessment tool for advisors considering joining or starting an independent RIA. Of the 136 advisors who self–identified as currently being with an independent broker-dealer or with a wirehouse and accessed the tool in Q4 2015, 82% said they are considering the independent RIA route and want to make a move before the end of 2016.  

In the latter half of 2015, TDAI also surveyed more than 80 RIAs with $1 billion in assets as part of its “Elite Advisor Survey” about their expectations for breakaway growth for the forthcoming year. According to this survey, these advisors on average unanimously agreed the recent momentum of breakaway transitions would carry over to this year. In fact, 73% of these RIAs said they expect the pace of breakaways transitioning into the RIA channel to quicken in 2016.

According to DeVoe & Company’s data, the number of breakaways joining RIAs has been growing over the past three years. DeVoe tracks all mergers, sales and acquisitions of firms that are registered with the SEC.

In 2013, according to DeVoe’s data, 22 breakaways with over $100 million in assets under management joined existing RIAs. The number of breakaways with over $100 million in AUM joining existing RIAs grew to 49 in 2014 and 56 in 2015.

According to DeVoe, there have already been seven breakaways in 2016 to-date that have joined up with established RIAs.

Collins, who heads the recruiting and consulting efforts to brokers and advisors considering becoming a hybrid or fee-only independent RIA, discussed a number of catalysts that he thinks will cause more advisors in the independent broker-dealer or wirehouse channels to break away and move into the RIA space. (For a counterpoint, read Mark Elzweig’s “The Breakaway Push Is Sputtering Out” in the March issue of Research Magazine.)

1. DOL Fiduciary Rule

Many independent broker-dealers and wirehouse advisors will soon have to contend with the proposed Department of Labor rules to limit conflicts of interest in the sale of retirement products.

“Some of the broker-dealers are trying to figure out how they’re going to manage that,” Collins told ThinkAdvsior. “Some have decided to sell.”

The DOL rule was cited as one of the reasons why MetLife sold its U.S. retail unit, an operation that sells products including variable annuities and life insurance. And, American International Group Inc. CEO Peter Hancock said that the proposal helped push him to sell a broker-dealer unit.

“I think what you’ll end up with [is] a handful of large independent broker-dealer firms that have economies of scale, and then you’ll end up with some of the firms on the other end of the spectrum that are maybe more boutique,” Collins said. “And some of the firms in the middle are going to be forced out of the business or forced to join one of the larger ones. And I think through that, it’s going to cause advisors to take a look at ‘OK if I have to make a move, I might as well take control and make sure I end up at the right place. What’s the right firm or the model for my clients?’”

2. Expiring Retention Bonuses

Cerulli reported in October that 72% of the wirehouse advisors who indicated that they have a retention contract at their current broker-dealer reported that their contracts will expire by 2019.

Those will be starting to fall off here in the next couple of years, and just think of that as a golden handcuff that’s been removed,” Collins told ThinkAdvisor. “Not that that would definitely keep someone in their seat, but it’s definitely something that does sometimes.”

Collins thinks this will open the wirehouse channel up a little more – and possibly make moves to the RIA side more possible.

In fact, Cerulli has reported that it expects nearly one-quarter of wirehouse to adopt some form of independence (in the independent broker-dealer, RIA or dually registered channels).

“For the wirehouse guy, they’ve seen other big groups leave so it’s gained a little traction or credibility as a solution,” Collins said.

3. Aging Advisor Population

A State Street Global Advisors report in October estimated almost 70,000 advisors with more than $2 trillion in assets under management will retire over the next five years, two-thirds of whom do not have a succession plan in place.

A 2014 Cerulli report estimated that one-third of wealth advisors plan to retire or leave the business over the next decade.

“Some of those guys are trying to figure out what’s next for my business, how am I going to take care of my clients? I’ve built this great practice,” Collins said. “Especially for the [independent broker-dealer] guy who might be a one-man office and maybe is managing $100 million, has one assistant, and now is thinking I need to bring somebody in to transition this book of business too. Am I going to get the best valuation for my business?”

Being in the RIA channel would give advisors a better value and a bigger group of people to sell to, Collins said.

Mergers and acquisitions activity in the RIA industry hit an all-time high record of 123 transactions executed in a single year in 2015, according to the DeVoe & Company RIA Deal Book. And DeVoe attributed some of that rise to the aging demographics of RIA owners.

I think you’ll continue to see some M&A activity and succession planning that will drive advisors [to RIAs],” Collins said. “If they’re looking to get the best valuation for their practice and have the biggest set of advisors or buyers to sell to – I think it’s easier to do in a model like an RIA channel. Versus, if you’re in a captive environment, you just have a smaller pool.”

4. Sell-Offs

MetLife Inc. recently sold its distribution network MetLife Premier Client Group, which included 4,000 financial advisers, to MassMutual in February. The decision came as a way for MetLife to simplify its New York-based company after it was designated by regulators as a systemically important financial institution (SIFI), a tag that can lead to higher capital requirements.

In June, Barclays Plc sold its U.S. wealth management business to Stifel Financial. At the time of sale, Barclays had about 180 financial advisers in the U.S. managing $56 billion in total client assets.

Since Credit Suisse announced its retreat from managing wealth for U.S. clients, wirehouses and other firms have been competing fiercely for the roughly 300 wealth managers that were in its U.S.-based private banking unit. Wells Fargo reached an agreement in October that gave it the inside track on recruiting Credit Suisse’s private-bank employees, which would allow U.S. advisers and clients to move to San Francisco-based Wells Fargo by early 2016.

“I think when you have a situation where a firm’s going through something like that, and there’s a lot of unknown, the advisors are going to be looking at what options are out there,” Collins told ThinkAdvisor. “Do I sit and wait and hope that this works out? Or should I take some ownership and start looking at the different models? And whether they’re considering going to another firm in the same channel or they’re thinking about going to the RIA channel, I think it will drive the advisors that are already more fee-focused to make that move [to the RIA channel].”

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