Independent broker-dealers take aim at the next generation of clients

Millennials, robo-advice and female clients top the IBD agenda

Jan 18, 2015 @ 12:01 am

By Sarah O'Brien

It's a new year, but independent broker-dealers are looking far beyond 2015 as they manage both ongoing challenges and emerging opportunities in their industry.

InvestmentNews recently hosted a roundtable of IBD industry leaders to discuss the future of their business. With a huge transfer of wealth expected over the next several decades — estimated at about $42 billion — IBDs are positioning themselves to help their advisers capture a piece of those assets as they deal with a new generation of investors that is demographically diverse and technologically savvy.

(More: View our full 2015 Top IBD special report)

“As their parents get older, the millennials will become more participatory in helping with their [parents'] wealth,” said Wayne Bloom, chief executive of Commonwealth Financial Network. “You have to speak to your core clients, but also to their children in a manner in which they are comfortable, using technology — social media, email, chat, video — to make sure they understand you're doing a good job for their parents.”

Many financial advisers meet with the children of their clients as a free service. But a Spectrem Group study released last year shows that just 29% of clients with assets of $25 million or more said their children or grandchildren have established a relationship with their adviser. And 44% said they think it's important for their children or grandchildren to meet with their adviser.

“I think there needs to be some sort of an alignment between the adviser, the primary client and their children,” said Larry Roth, CEO of Cetera Financial Group, a subsidiary of RCS Capital. “We all know from communicating with our kids. We used to actually call them on the phone, then email ... and then they jumped to texts.”

“I think a lot of the younger generation [trust] their iPhones more than they trust the financial community — and with good reason,” Mr. Bloom said. “What are the headlines they've been exposed to? A lot of bad actors, firms that haven't done the right thing, the mortgage crisis.”

Whether those young investors will end up with an adviser is complicated by the emergence of robo-advisers, an asset-management model in its infancy.

“Today's robo-advisers, to me, are so laughable because they really don't do anything,” Mr. Roth said. “The financial advisers we all work with are members of their community; they know their clients, they know their families ... They have a sense about what [clients] hope to do with the next five, 10, 20 years of their lives. I think the practice of the future will have all the technology that Schwab or Fidelity or any of the coolest robo-advisers might have, but it's the human being that makes all the difference.”

Robo-advisers manage about $19 billion, according to research firm Corporate Insight. That represents only a sliver of the financial advice market, which as of 2013 stood at $36.8 trillion, according to Cerulli Associates.


“I don't think there is any coincidence that part of the intrigue with robo-advice is coming right at the end of a five-year bull market,” said Robert Moore, president of LPL Financial. “You set it and leave it. [It's] sort of algorithmic advice.”

It's likely that most advisers eventually will have the option of using some sort of robo-adviser in their own practice.

For instance, TD Ameritrade and Fidelity Investments are making robo-technology available to their networks of independent advisers. And Charles Schwab recently announced that a version of its robo-offering for retail clients will be available to advisers this year.

“To me, the algorithmic activity is absolutely going to be made available to all of our advisers, and they are going to use it as efficiently as they can,” Mr. Moore said. “I view [robo-advisers] as an opportunity ... It's going to help manage the needs of a practice.”

Roundtable participants pointed out that the most pressing demographic shift that needs to be addressed centers on female clients.

In the United States alone, women exercise decision-making control over $11.2 trillion in assets, according to the Center for Talent Innovation, a research firm. That's 39% of the nation's estimated $28.6 trillion of investible assets.

Moreover, the same research shows that among women who have advisers, 67% think their adviser does not understand them or is uninterested in them.


The way IBDs recruit talent says a lot. They generally recruit advisers who already have a good book of business, not those who fit a certain demographic.

“We don't have a training program,” Mr. Bloom said. “We recruit advisers who have been trained by someone else, who have been in the business for a long time. “The pool we're drawing from is lacking. We reflect the pool.”

Women make up only about 13% of adviser ranks, according to Talent Innovation.

“The training programs have to be reinvented,” Mr. Moore said. “It's clear [women] have a certain type of approach to an adviser relationship that is different. It's not the world most of the folks in the industry today were trained in.”


IBDs also are focused on how to recruit young advisers.

“With the average age of an adviser being in the mid-50s, where is the next generation of advisers coming from?” asked John Johnson, president and CEO of National Planning. “That has to take priority over dealing with millennials.”

Roundtable participants echoed the sentiment that more needs to be done to attract young people to the industry.

“The issue we ... should be thinking about is how we're going to engender new-to-industry advisers,” Mr. Moore said.

Sarah O'Brien is a freelance writer.


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