Independent Broker-Dealers Grow Fastest In Sector - Study

Tom Burroughes

30 November 2018

Broker-dealers who run as independents – rather than as part of a larger organization – have grown faster than certain other wealth management models in recent years, a fact likely to stir further debate about what true independence means.

Cerulli Associates, the research and analytics firm, said independent broker-dealers clocked up a five-year compound annual growth rate off 11 per cent, ahead of retail bank B/Ds at 9 per cent and national and regional B/Ds, also coming in at 9 per cent.

“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 . Likewise, IBD channel assets totaling $2.8 trillion surge more than 20 per cent when including hybrid advisors’ assets held by their respective B/Ds,” Ed Louis, a senior analyst at Cerulli, said. “However, the sheer size of the channel is not the explanation of growth,” Louis continued.

Significant growth in the IBD space has come from “niche” and “institutional” segments, the firm said, noting that institutional players logged a CAGR of 11 per cent, while niche players did even better, at 14 per cent.

Institutional IBDs are the largest players of their type, with 24 such firms in total and collectively, controlling 49 per cent of the channel’s advisor force and 59 per cent of assets. These players benefit from brand recognition and reputation, and are accumulating business via recruitment and acquisitions, Louis said.

On the flipside, niche IBDs are far smaller and there are only 14 of them, holding 11 per cent of the channel’s advisors and 14 per cent of assets. They benefit from concentrating on particular areas and products such as retirement plans and their advisors are the most productive in this space.

The growth that Cerulli notes makes the IBD channel an appealing target for asset managers seeking broader distribution opportunities.

“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,” Louis said.

To continue this growth pace, Louis said the IBD channel must examine the best ways to handle succession, improve advisor productivity, and protect against large teams migrating to the independent RIA model.

The comments come from a report called US Broker/Dealer Marketplace 2018: Escalating Margin Pressure.

Earlier this year, Cerulli examined pressures affecting broker-dealer business models.