IBD Execs Open Up About Industry Shifts

Independent broker-dealer executives generally recognize that a tough path lies ahead for the business due to rising regulatory pressures and associated costs, IT demands and other challenges. They disagree, though, on exactly what that means for their firms and affiliated advisors.

“There will be fewer advisors and fewer broker-dealers in the future, no doubt,” said James Poer, president and CEO of Kestra Financial, during a panel discussion on Jan. 30 at the Financial Services Institute’s OneVoice conference near Dallas.

Data released late last year from the Financial Industry Regulatory Authority, for example, shows the number of member firms dropping to 3,835 in 2016 from 5,374 in 2002. In Poer’s view, IBDs that aggressively invest in people, technology and related resources “are going to be the winners.”

For Cetera Financial Group CEO Robert Moore, these investments should translate into the creation of “an advice-centric experience for clients.” They also must include “a shift in [advisor] engagement away from professional product sales to more objective planning and solutions,” he explained.

Plus, Moore says, IBDs must marry technology and human capital, so that advisors’ — and the industry’s — offerings adequately address the future needs of clients: “It’s about the information you have about clients and how you create touchpoints, emotional responses … it all dovetails into a very delightful and exciting opportunity in our profession and is a way to distance ourselves from [robo advisors].”

Moore sees advisors winning out over IT. “The depth and context for relationships will be highly transformation over the next few years,” he said. “It’s not about investment management but about advice — as the tech curve progresses and human touch becomes more important.”

This means firms and advisors need to “get more efficient and more effective and deeper in their relationships,” the executive said. They have a pretty big incentive to do so, he points out: “Over next 10 years, the money in motion will … have a big T [for trillion] on it… We just have to equip and prepare advisors to do all this [change], and [clients] will pay what they pay today.”

Moore sees advisors as being able to keep and even grow fees by offering concierge-type services. “I don’t believe in [fee] compression … But there’s a lot of work to be done,” he said, adding that he’s “excited” about the future of the advice business.

Paradigm Shifts

The advice business made a major transformation when it went from its focus on commissions to one based on fees, according to John Rooney, managing principal-San Diego, for Commonwealth Financial Network. “The best and brightest brokers swore at the time that they would not do it … it was too expensive for clients,” Rooney explained. “But [then] they converted, and the marketplace overwhelmed them.”

Today, the industry is facing a second paradigm shift — moving from asset management to wealth management, he says: “The public value proposition is going from money management to holistic planning.”

Advisors that don’t make this adjustment “will be consolidated or merged out of the business,” Rooney added. For broker-dealers, this means their main task is to help advisors offer holistic planning “at scale” by giving them coaching, tech tools and the like.

Poer sees the change as entailing the delivery of a new end-client experience: “It’s time to rebuild the value set and how advisors deliver value,” he said. Displacement and consolidation in the industry are related to this changing value proposition.

Firms working with the older, more traditional IBD business model “are not going to make it,” the Kestra chief says. Instead, they need to turn themselves in to service-oriented, technology-based organizations. “Today, it’s about building out a deep tech experience and staffing” and about having passion “for the end game of creating the unique client experience,” he explained.

Cetera’s Moore sees a new client experience coming to life, which should help advisors and IBDs thrive. “Today, there’s just a statement and market updates [instead of] an enriching, goals-based [experience] ‘wigitized’ into a customized landing page for them,” he explained. This experience could include information about clients’ hobbies “rather than the anesthetized portfolio, which is not what clients care most about.”