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Industry Spotlight > Broker Dealers

BDs Taking a Hit as More Advisors Choose Independence: Cerulli

By Michael S. Fischer

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A new report from Cerulli Associates indicates that many broker-dealers are finding it difficult to generate net growth in advisor affiliations as alternative affiliations become more popular among financial advisors.

Wirehouses appear to be especially at risk of losing advisors, the report said, as their advisors often say they are undecided whether to remain affiliated with their firm over the next 12 months.

These advisors identified several challenges of operating at wirehouse firms, including insufficient staffing support, changes to compensation and imposed minimum for new clients.

“These frustrations all relate to the extent to which an advisor is able to control how they operate their practice and are common motivating factors for breaking away,” Michael Rose, associate director of wealth management at Cerulli, said in a statement.

Cerulli’s research found that 71% of all advisors, on average, would prefer independent affiliation — including independent broker-dealer, hybrid RIA and independent RIA affiliation — if they were to change firms, compared with only 44% of advisors who are currently independently affiliated.

“This suggests that there is still an excess demand for independent affiliation among advisors, which will likely drive the growth of the independent channels over the foreseeable future,” Rose said.

The rate of growth in the number of advisors who affiliate with independent and hybrid RIAs has increased on an annualized basis by 4.4%, and 2% over the last five years, according to the report.

Sixty-two percent of employee BD advisors cited greater autonomy as the main reason for their preference for independence, followed by 57% who said the reason was higher payout and 54% who cited the ability to build financial value in an independent business.

What BDs Can Do

Cerulli recommended that both wirehouses and other traditional BDs tread carefully when making changes to their payout grids. It also said they should consider more closely the return on investment associated with hiring support staff, which can result in improved retention rates and recruitment of new advisor teams.

The research also found that technology has enormous influence on advisor recruitment and retention. Fifty-six percent of advisors said technology would influence their decision to choose to affiliate with a BD, while 50% said the same about the level of autonomy and control over how they serve their clients.

“Firms that are laser-focused on maximizing the quality of the resources they offer to advisors in terms of their products, services and support, along with those that offer flexibility in affiliation options, are most likely to succeed in recruiting and retaining top advisor talent,” Rose said.

Michael S. Fischer

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