Industry Spotlight > Broker Dealers

Under Pressure: The 2017 Broker-Dealer Reference Guide

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For the firms participating in Investment Advisor’s annual Broker-Dealer Reference Guide, the competitive and convoluted atmosphere they face today can be perplexing. Advisors, clients and regulators are asking more and more of them, which translates into higher expenses. Still, investors are contributing more to retirement and other accounts, and positive returns in the equity markets have been lifting balances recently.

Yet industry consolidation continues. The number of independent broker-dealers stands at around 3,900, according to Fishbowl Strategies, down from nearly 4,600 in 2010, and at least 1,000 of these firm have less than 10 registered reps. Meanwhile, the number of RIAs is expanding and is close to 12,200.

The 2017 Broker-Dealer Reference Guide reveals some striking information. For instance, the number of reps leaving firms in this year’s survey surpassed the number joining them. Still, the average headcount at firms participating in the survey rose by a handful from last year, reaching 1,166 per BD in 2017.

Furthermore, the average level of fees and commissions per rep, or gross production, is rising. In fact, it is close to $232,000 — a jump of 6% from 2016 and 9% from 2015. Average assets per advisor are expanding at an even more aggressive pace. This figure is close to $31 million, up about 15% from a year ago. Nonetheless, average gross revenue per IBD dropped slightly from 2015 to 2016, illustrating the fact that many firms face intense competition for their advisors, clients and business. The fee-based figure, though, improved during the same period.

We collected 2016 data from broker-dealers in March and April for an objective ranking of the best firms by various metrics. You can find sortable tables of the top 10 firms on the following pages.

Click here for a PDF of the full 2017 Reference Guidewhich ranks the top broker-dealers by revenue, reps, production and other metrics, as reported by the firms themselves.

Top 10 by 2016 BD Gross Revenue

The largest broker-dealers are taking on more and more tasks for their advisors, which requires that firms invest more resources than in the past. The biggest IBD by sales is LPL Financial, with nearly $4 billion in gross revenues last year. That’s more than double the level produced by its closest rivals.

“LPL Financial is successful because we allow our advisors to focus on generating revenue by helping them eliminate, automate or outsource activities that can be time-consuming and burdensome in today’s world,” explained LPL Financial’s Andy Kalbaugh, head of national sales and consulting.

Top 10 by Number of Registered Reps

LPL tops this chart, too, with nearly 14,400 affiliated advisors. “[Our] business model creates flexibility for our advisors, allowing them to grow and evolve without having to change their broker-dealer partner. That has been our secret sauce for many years,” said Kalbaugh.

Other IBDs on the list aim to expand, but they don’t necessarily need their size and scale to match LPL’s. “We’re large enough to provide the integrated, more sophisticated resources of our largest competitors, but within a culture that’s very relationship-driven,” Raymond James President Scott Curtis explained.

For Cambridge Investment Research, private ownership offers a way to “control our own destiny,” said President and CEO Amy Webber, and allows the firm to “allocate resources on innovation even in the face of significant regulatory change.”



Top 10 Independent Broker-Dealers By Number of Registered Reps
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Top 10 by Average Annual Gross Production per Advisor

Of the 51 respondents, two have average annual fees and commissions (or production) per rep that tops $500,000: Raymond James and Commonwealth Financial. “Our success reflects the collective efforts of many dedicated professionals supporting the continued success and growth of financial advisors affiliated with Raymond James,” Curtis explained.

Top-producing advisors “thrive on the extra value-added services that Commonwealth provides,” said CEO Wayne Bloom. “We rely on higher-than-average staffing in terms of both quality and quantity to ensure that we deliver consistently. … As my mom told me a long time ago, there’s no substitute for hard work!”



Top 10 by Number of Reps With Their Own RIA

The popularity of RIAs is on the rise, which some firms are eager to support. “Triad Advisors was founded nearly two decades ago with an exclusive focus on supporting hybrid advisors, including those with their own RIA,” said CEO Jeff Rosenthal. “This was years before the concept of being a hybrid advisor, let alone having your own RIA or hybrid RIA, was as mainstream within the industry as it is today.”

Today, growing regulatory issues favor IBDs that work with the major custodians, Rosenthal said. Triad believes its younger, more diverse advisor population benefits its growth and performance. “When you combine that with a boutique service culture that also benefits from the Ladenburg Thalmann resources, you have an extremely strong value proposition,” he explained, adding that most of its management team is part of Gen X.