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Brokers Holding Off on the Leap to Independence: TD Ameritrade

By Michael S. Fischer

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A survey released Wednesday by TD Ameritrade Institutional finds that most brokers who dream of going independent are holding off on their plans. But all in all, they’re confident that they can successfully transition to the independent RIA channel.

The share of potential breakaways who said they planned to make a move in the next 12 months plummeted to 33% in the latest survey from 55% in the fall.

Twenty-five percent of brokers who expressed interest in going independent said they planned to launch and operate their own firm. This compared with 29% who said this in a similar survey conducted in October and November.

At the same time, the new study found that many brokers were interested in joining another RIA rather than hanging out their own shingle.

Thirty-six percent of brokers surveyed said they were open to either joining an existing RIA firm as an employee or partnering with platforms that provide technology and operations support, up from a combined 16% in the fall survey.

“Though the desire to become an independent RIA remains strong among brokers, the current environment has prompted more breakaways to pursue an alternative path to independence — joining an established RIA firm,” Scott Collins, managing director of sales consulting at TD Ameritrade Institutional, said in a statement.

“For these advisors, it is an opportunity to gain the benefits of being an RIA without having to start their own firm.”

TD Ameritrade Institutional polled two groups of brokers in March and April: 130 “potential breakaways” at national, regional and independent broker-dealers who had an average of $100 million in assets under management; and 330 advisors with an average of $320 million under management who had already transitioned to the independent RIA channel either as an owner, a partner or an employee.

Although potential breakaways remain interested in moving to the independent RIA channel, the coronavirus pandemic has prompted many to put their plans on hold, according to the spring survey. Still, 40% said they were likelier to break away than they were six months ago.

“Advisors often table their own career plans and focus on clients during difficult times, so it’s little surprise they’re tapping the brakes on breaking away,” Collins said.

“We fully that expect breakaway activity will pick right back up when the environment improves, as more brokers will seek out the control, earnings potential and client-first environment of an independent RIA.”

Greener Pastures

Brokers in the study expressed increasing confidence in their ability to make a successful move, manage an independent practice and overcome challenges.

Virtually all respondents said that clients placed their trust in them, the advisor, not in the brand of their employer. Four in five maintained that they did not need their employer’s brand name to grow their own practice. And nine in 10 said they expected to earn more as an RIA.

The survey also found that concerns that had kept some brokers from going independent may be easing:

  • Heightened market volatility or economic downturn: 51% vs. 55% in fall
  • Transition to independence seems too difficult: 48% vs. 69%
  • Managing legal/compliance will be too difficult: 47% vs. 60%
  • Practice not big enough to become an RIA: 40% vs. 56%

“Our survey reveals that the level of confidence in making the move to independence has increased among prospects, while some of the fears that keep brokers in their seats have abated,” Collins said.

“As more brokers successfully make the move and sustain a migration trend going strong for more than a decade, the independent RIA has clearly become the place to be.”

While fewer potential breakaways say they were ready to make their move soon, the priorities and concerns that have driven breakaway activity remain, the survey findings showed. Thirty-four percent of brokers expressed dissatisfaction with the leadership of their current employers, 29% with compensation and 28% with the firm’s corporate culture.

Many potential breakaways said they wanted greater control over how they manage their practice and the freedom to serve their clients’ interests first.

And not least, there is the opportunity to earn more. Seventy percent of potential breakaways believed they would make more as an independent RIA — the equivalent of a 61% payout, according to TD Ameritrade Institutional.

Life on the Outside

Among brokers in the survey who had already moved to the RIA channel, 77% said their quality of life was better now as an independent RIA.

Eighty percent of those who had broken away reported that making the transition was less challenging than they had anticipated, while 78% said they had successfully brought all the clients they wanted to keep with them to their new firms.

Likewise, managing compliance and other operational issues proved to be far less daunting than expected.

Sixty-nine percent of those who had transitioned said they had received plenty of support from others in the industry, compared with 61% in the fall survey. And 59% reported that they had been able to grow their business faster than expected, versus 51% in the earlier survey.

— Check out How to Break Away & Start Your Own Firm in a Pandemic on ThinkAdvisor.

Michael S. Fischer

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