Broker-dealers have been advised to focus on working with advisor teams, but that large "ensembles" are more likely to transition to the independent space.

Broker-dealers should think about recalibrating their relationship with advisors to remain competitive in the financial advice sector, particularly given the intensifying breakaway trend, Pershing said in a recent whitepaper.

The report, Why Teams Are the Client of the Future for Broker-Dealers, said the top client of today's successful broker-dealer is not a “rep,” or even an “advisor,” but an “ensemble” - a firm or team of professionals.

Ensembles already control a significant percentage of broker-dealer revenue, growing faster than the average practice by serving wealthier clients and offering better career growth opportunities. Importantly, they are acting as a successor for many of the smaller solo practices and are likely to emerge as the ultimate consolidators of the industry, according to the whitepaper.

“[But] Broker-dealers have formed traditional affiliation models around individuals, which don't necessarily work as well for ensemble firms,” said Jim Crowley, chief relationship officer and managing director at Pershing, a BNY Mellon firm. “However, broker-dealers that recognize and understand that their top client is a team rather than an individual will not only strengthen existing relationships with these clients, but will also position themselves for organic growth and strategic acquisitions.”

While ensembles are valuable to broker-dealers, they are also at risk of being lost as clients as larger teams leave the sector in favor of the independent channel or hybrid business model. Indeed, as scores of RIAs enter their third decade in business, revenue and profitability are at all-time highs, driven by increased operational sophistication, according to recent research by Schwab.

With that said, Pershing believes that broker-dealers can still successfully recruit and retain with ensembles by better understanding how they work and by restructuring affiliation models. To do this, the firm advises that broker-dealers establish a relationship with multiple individuals within ensemble teams, including the CEO/managing partner/leader, COO/operations leader, advisors and successors.

The whitepaper also advises that broker-dealers consider reframing their value proposition to include a wider spectrum of financial advice, as well as show ability to serve in a more custodial capacity. (This includes understanding the investment philosophy of teams, knowing the tools advisors need to run their business efficiently, integrating technologies and support, offering holistic planning, and building confidence and trust through open communication.) Pershing also noted that one of the most productive avenues for strategic partnership is outsourcing, such as in the areas of compliance, technology, due diligence, back-office operations and practice management.

The insights, while focused on broker-dealer strategies, are indicative of wider wealth management industry trends including a stronger focus on "holistic" financial planning at a time when clients are thinking harder about what they are paying for the services they are receiving, and as the fiduciary debate rumbles on.