Wirehouses Most Vulnerable To Advisor Defections – Cerulli Report

Editorial Staff

20 December 2022

Wirehouse firms appear to be most at risk of losing advisors, with their advisors most frequently identifying as being undecided about remaining affiliated with their firms over the next 12 months, according to a report by Cerulli Associates.

Generating net growth in advisor affiliations has been a challenge for many broker/dealers as increased competition from alternative affiliation options such as independent and hybrid registered investment advisor affiliation gain popularity among financial advisors, the data and analytics firm said in a report.

Among the difficulties of operating at wirehouse firms identified by these advisors were: insufficient staffing support, changes to compensation, and imposed minimums for new clients rank at the top.

“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, said.

The commentary comes from The Cerulli Report: US Broker/Dealer Marketplace 2022: Evolving Approaches to Advisor Recruitment and Affiliation.

On average, 71 per cent of all advisors identify a preference for independent affiliation – including independent broker/dealer , hybrid RIA, and independent RIA affiliation – if they were to change firms, compared with only 44 per cent of advisors who are 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 grown on an annualized basis by 4.4 per cent and 2.0 per cent, respectively, over the last five years.

Most employee B/D advisors identify greater autonomy , a higher pay-out , and the ability to build financial value in an independent business as the top major reasons for their preference for independence.

To mitigate potential affiliation changes, Cerulli recommends that both wirehouse firms and other traditional B/Ds tread carefully when making changes to their pay-out grids and consider more closely the return on investment associated with the hiring of support staff, which can result in improved retention rates and new recruitment of advisor teams.

Cerulli said technology has a “tremendous impact” on advisor recruiting and retention. Technology and the level of autonomy/control over how they serve their clients are the most frequently identified factors that would influence an advisor’s decision to choose to affiliate with a B/D, the report said.

“Technology remains the most frequently cited factor that would influence an advisor’s decision to join a given B/D if they were to change affiliation – it stands out as one of the most significant differentiating factors among B/Ds in the minds of many advisors,” Rose said.

“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,” he concluded.