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BDs Finding Balance: 2016 Broker-Dealer Reference Guide

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As has been the case seemingly forever when Investment Advisor presents the findings of its annual Broker-Dealer Reference Guide, the independent broker-dealer industry is in the midst of a balancing act between running profitable businesses and dealing with new regulatory burdens and changing demographics among both its representatives and those reps’ end clients. As a subsection of the overall brokerage industry, the industry itself is shrinking. Over the past five years, according to FINRA numbers published in March 2016, the number of its member firms fell 11.5% from 2011 to 3,941 firms. The number of registered reps increased 1.7% over that same time to 641,157.

A February blog by broker-dealer recruiter Jonathan Henschen, using data from research firm Fishbowl, reported that at year-end 2015 there were 4,034 BDs, down from 4,578 in 2010. Henschen argued in his blog that these BD closings “could very well be the tip of the iceberg,” considering how the Department of Labor’s fiduciary rule affects broker-dealers.

Yet the movement toward independence continues. A Fidelity Clearing and Custody report released in late April on advisor movement counted 34,000 financial advisors who had switched firms in 2014, the last year for which data was available. The Fidelity survey of 692 advisors who had switched over the last five years found that 50% chose an RIA firm or affiliated with an independent broker-dealer. Why did they move from banks and wirehouses to one of those independent models? The most-often cited reasons were a desire for more operational control, a greater ability to focus on client needs and more freedom to develop and implement investment strategies. Yes, the desire to make more money motivated these switchers, but broker-dealer recruiters and executives take heed: 30% of them said they had done so to achieve a better work-life balance.

The following pages show the top 10 broker-dealers by various metrics. Click here to download a PDF of all 67 broker-dealers who responded to our annual survey. 

Top 10 by 2015 BD Gross Revenue

Scale matters when it comes to running a successful independent broker-dealer, as seen in our listing of the top 10 biggest BDs measured by revenue. But notice the interesting correlation between the biggest firms by overall revenues and fee-based revenues. That may bode well for BDs who wish to ride the secular trend toward fees but also comply with the regulatory costs forced by the DOL’s fiduciary rule. However, smaller, more boutique-like BDs continue to flourish, and the crashing and burning of Nicholas Schorsch’s BD empire over the past year suggests that scale alone does not guarantee success.


Top 10 by Number of Registered Reps

LPL continues to stand alone at the top of the IBD rep force listing, and recent comments by CEO Mark Casady suggest that if more consolidation occurs in the industry, LPL might benefit. Will the DOL rule foster that consolidation? It seems likely, considering the human and financial cost of DOL compliance. However, BDs that already are firmly ensconced in the fee-based business should find it easier to adjust to the changed business conditions forced upon them by the DOL, both from a compliance structure viewpoint but also from a cultural stance. What LPL wrote in its 10-K filing for 2015 under “Risks Related to Our Business and Industry” could be said for all independent BDs: “Our strategic plan is premised upon continued growth in the number of our advisors and the assets they serve.”


Top 10 by Average Annual Gross Production per Advisor

It seems almost quaint to rank independent broker-dealers by “average annual production” in 2016, when many IBD reps use the corporate RIA or their own RIA for at least some part of their business. Among RIAs themselves, “production” is usually a dirty word, even though part of that production comes in the form of fees for managing assets. It’s one thing to recruit a successful representative who can sell and manage money; it’s another thing to attract the type and size of client — and gain wallet share from that client — that provides income to the rep and broker-dealer. That’s why the BDs at the top of our ranking should be applauded, regardless of the number of reps they may have.

Top 10 IBDs by Average Annual Gross Production per Advisor 

Top 10 by Number of Reps With Their Own RIA

You may not need to run your own RIA — and be contracted with a broker-dealer that accommodates such held-away business — to be a successful BD rep, but for an industry that celebrates independence and is responsive to end clients’ preferences, it’s an important metric. This Top 10 ranking shows an interesting correlation: Most of the BDs listed here also have a high percentage of reps who sport the CFP designation, which by itself suggests a higher level of education and, yes, a fiduciary obligation to clients. A CFP ranking of the 67 IBDs in our annual survey (see for the full survey results) would place Commonwealth Financial Network at the top with 48% of its reps holding a CFP, followed by The Strategic Financial Alliance at 47% and Centaurus Financial at 38%.

Top 10 IBDs by Number of Reps With Their Own RIA

Top 10 IBDs by Number of Reps to Home Office Staff


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