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Portfolio > Asset Managers

Independent BDs Outpace All Others for Growth

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Stand in line, all you other broker-dealers—whether regional, national or wirehouse. Independent BDs have you beat for growth over the last five years, in both assets and headcounts.

So says U.S. Broker/Dealer Marketplace 2018: Escalating Margin Pressure, a new report from Cerulli Associates that also says that independents’ compound annual growth rate over the last five years “nearly doubled the four wirehouses, which posted a mere 6%.”

IBDs’ CAGR hit 11%, surpassing the 9% gains of gains of retail bank BDs, as well as those of national and regional BDs (also at 9%).

“IBDs have the second-largest advisor force at more than 59,000, a total that soars to an industry-dominating 86,779 when including hybrid registered investment advisors,” Ed Louis, a senior analyst at Cerulli, says in the report.

(Related:  Why Hybrid RIAs Are Enjoying Stellar Growth)

Louis adds that in addition, “IBD channel assets totaling $2.8 trillion surge more than 20% when including hybrid advisors’ assets held by their respective B/Ds. However, the sheer size of the channel is not the explanation of growth.”

So what does account for it? For starters, according to Cerulli there are four distinct subsegments among IBDs: true, institutional, niche and insurance legacy. According to Louis, the niche, at 14%, and institutional, at 11%, have really pushed the envelope in channel growth for the last five years, with institutional the largest.

The 24 institutional IBDs control 49% of the channel’s advisor force and 59% of the assets, as well as benefiting from national scale, brand reputation and rising advisor counts boosted via recruiting and large acquisition efforts.

Niche IBDs are considerably smaller, according to the report, with the 14 firms controlling just 11% of the channel’s advisors and 14% of assets. But where these firms excel is the benefit of focusing on specific niches or products, such as retirement plans. In addition, says the report, their advisors are the most productive in the channel.

The IBD channel’s pace of growth appeals to asset managers looking for wider distribution opportunities. Louis adds, “IBDs remain one of asset managers’ most consistent opportunities due to the large number of potential firm partnerships, advisors, and accelerating growth from the hybrid channel.”

But if this pace is to continue, IBDs will need to take several actions: evaluate succession planning models, improve advisor productivity and ward off large teams migrating to the independent RIA model.

(Related:  Why Hybrid RIAs Are Enjoying Stellar Growth)


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