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Practice Management > Building Your Business

How OSJs Are Responding to Major Industry Changes

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Broker-dealers’ office of supervisory jurisdictions are evolving in response to new competitors, technology innovations, recent regulation and continued industry consolidation, a new study shows.

The business models of OSJs, which exercise supervisory responsibilities for agents and have final approval of new accounts, make markets or structure offerings, are transforming to expand their service offering for clients.

AssetMark conducted the study, released Wednesday, in conjunction with the Aite Group, basing findings on in-depth interviews with 25 principals responsible for managing an OSJ branch.

Three main OSJ business models emerged during the course of the study, according to AssetMark.

Traditional OSJs are mainly focused on supervision and promoting their personal relationships, reputation and referral network as drivers of value. Additional services are usually an extension of the broker-dealer.

Their strengths lie in a proven, scalable model with low startup cost and solid growth. Most manage a book of business.

However, the traditional OSJ model faces several challenges, the study found. Affiliated advisors generally are comparatively lower producers, and recruiting is becoming increasingly competitive. Also, it is difficult to build enterprise business with sustainable, transferable value.

Facilitators take the traditional OSJ model a step further by providing business-building services such as practice management or marketing support to facilitate the advisor experience. Services are often ad hoc and not part of a formal business designed to stand on its own.

Facilitators have higher producing advisors than traditional OSJs, and their advisors are generally committed to a fee-based business.

A downside of this model is that technology is limited to basic support. In addition, the principal is typically a producer, which means that his or her focus is diverted from growing sustainable business that supports advisors. And according to the study, this in-between model creates limited service offerings that hamper recruiting.

Business builders, the third model, are the most proactive in expanding their services. They are engaged in providing services to advisors on a turnkey or customized basis. They are very selective and aggressive when recruiting advisors and acquiring practices.

The study found that business builders have high-producing advisors with a strong commitment to a fee-based business. Their plug-and-play infrastructure is very attractive to advisor recruits, freeing them to focus on building their business.

In addition, dedicated managers support articulation of vision and actionable business plans.

At the same time, the return on initial investment depends on business builders’ compelling offering gaining traction in the market. Moreover, their overly selective recruiting may impede growth.

“An unexpected finding of this study runs counter to the concept of the ‘Super OSJ’ frequently referred to in the industry,” said Matt Matrisian, senior vice president of strategic initiatives at AssetMark, said in a statement.

“Among the business builders identified in this study, we found that small firms were equally equipped to deliver a consulting model to advisors as their ‘supersized’ peers.”

Business Performance

The study found that the OSJs that most aggressively expanded their services tended to perform better financially. According to the study, all OSJs have a portfolio of advisors with both commission-based and fee-based revenue — the latter having increased from 30% of assets under management in 2010 to 37% in 2014.

Business builders, however, are the only segment to generate a majority of their revenue from recurring fees based on assets under management rather than commissions. For traditional OSJs, 74% of their advisors’ revenue is commission-based, while business builders foster advisors with a 61% fee-based revenue stream.

The study found that fee-based revenue streams benefited business builders’ revenues. Whereas traditional and facilitator OSJs generated a three-year growth rate of 12%, the business builder model generated a 32% growth rate over three years.

In addition, managed assets and revenue per advisor grew progressively from traditional, facilitator and business builder OSJs. The average assets under management per advisor was $12 million, $23 million and $38 million for each, respectively.

Average annual revenue per advisor for business builders was $279,000, compared with $199,000 for facilitator OSJs and $118,000 for traditional ones.

— Check out How Super OSJs Bring Innovation to Broker-Dealers on ThinkAdvisor.



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