5 Misconceptions About Working Within a Broker-Dealer

Myth #2: Regulation is easier on the other side of the house. Advisors citing frustration with compliance as a reason to move away from a broker-dealer was a recurring theme at our Recruiters Summit. There’s a misconception that leaving the broker-dealer space means leaving regulatory responsibilities behind. In reality, regulation — and an increased focus on acting with integrity and in the best interest of your clients — is a fact of life with any business model. While audits may be less frequent elsewhere, they still occur. As Ryan Shanks, founder and CEO of Finetooth Consulting, said at the summit: “Advisors who think there is less compliance elsewhere are just trying to convince themselves that there’s an easier way.”

Myth #3: Technology options at broker-dealer firms are limited. Broker-dealers are increasingly focused on building sophisticated tech stacks for their advisors, as well as deploying enhanced end investor solutions that meet the high expectations of today’s investors. We are seeing firms put a real emphasis on financial planning tools, CRM systems and portfolio management in particular – three technology capabilities that enhance advisors’ day-to-day experiences and their ability to provide the best client service. Developing a sophisticated technology platform can be challenging for advisors who are setting up their own shops, especially with the overwhelming number of options out there. Broker-dealers generally curate a choice of solutions and provide guidance to help advisors select what’s best for their needs.

Myth #4: Life within a broker-dealer is one size fits all. There is actually significant flexibility within broker-dealers, including around business model. Many broker-dealers have noted that the majority of their growth is advisory in nature, and that is expected to continue. We’re seeing significant growth in fee-based accounts within our broker-dealer segment and very strong “managed” flows. According to the Cerulli Advisor Metrics 2017 report, advisors anticipate asset-based fees will make up approximately 56 percent of compensation at independent broker-dealers in 2019, up from 47% in 2017 (and 43% in 2009). Even more asset-based fee growth is expected at national and regional broker-dealers — from 48% of average compensation in 2017 to approximately 63% in 2019. Within most firms, an advisor can choose the business model that aligns best with his or her own value proposition and the level of independence desired – whether that’s working as a traditional broker-dealer, or part of an affiliated corporate, hybrid or independent RIA. This flexibility and the ability to evolve over time is part of the value firms should highlight when recruiting and growing talent.

Myth #5: I’d be better off fully controlling my business. Fully managing the business and making all of the decisions is appealing to many, but not to all. Entrepreneurship may be the appropriate path for some advisors, but others will be happier with the infrastructure and support offered by a broker-dealer. Being fully accountable for a business’s P&L is a much different game than being an excellent, independent advisor. What’s more, broker-dealers do allow advisors varying degrees of control over their businesses. Advisors should think through their definition of independence, as well as their goals and priorities.

We’re working closely with our clients to rebrand “broker-dealer,” to help firms shake off some of the misunderstandings surrounding them. In the meantime, firms can work on articulating their value propositions to paint fuller pictures of what they offer to advisors.

Carolyn Clancy is executive vice president and head of the broker-dealer segment for Fidelity Clearing & Custody Solutions.