Broker-dealer asset growth outpaces rival channels, Cerulli says

B-Ds grew assets at a rate of 9.1% year-over-year, beating industry's overall rate by 1.9%.
DEC 15, 2017

It's been a good year for broker-dealers, compared with rival channels. The latest data from research and consulting firm Cerulli Associates found that national and regional B-Ds grew assets at a rate of 9.1% year-over-year, faster than all other adviser channels. B-Ds beat the industry's overall growth rate by 1.9%. (More: UBS team managing $440 million moves to Raymond James) Kenton Shirk, the director of Cerulli's intermediary practice, said growth was driven partially by European banks exiting private wealth in the U.S., "but recruiting advantages — scale, brand and culture — are driving organic growth." WIREHOUSE RETRENCHMENT Mr. Shirk said that the recruiting scale-back and reduced bonuses at wirehouses have lowered the compensation advantage they've historically held over B-Ds. This has opened the door for national and regional firms to invest aggressively in recruiting. Louis Diamond, vice president of Diamond Consultants, said he wasn't surprised at all by the strong growth at B-Ds. "There's a lot of headwinds facing the wirehouses now," Mr. Diamond said. "There's a general unhappiness with the bureaucracy, changing compensation structures and lack of control that advisers face. The response is to go to a regional brokerage firm." Three-quarters of advisers who recently switched firms and left a branch network cited culture as a moderate or major factor in their decisions, according to Cerulli's research. (More: Morgan Stanley's aggressive move against former employee puts brokers on notice) "Large national and regional firms that maintain an adviser orientation are best positioned to promote large-firm resources with a smaller firm culture, an attractive message for advisers seeking to depart bureaucratic and impersonal organizations," Mr. Shirk said. Mr. Diamond said advisers are choosing the B-D channel because the regional firms still allow them to monetize their business better than going independent. TECHNICAL ISSUES Many advisers may have grown a great book of business, but don't have the entrepreneurial spirit to start their own firm, Mr. Diamond added. They prefer the comfort and support a regional firm provides, especially in providing a turnkey technology platform. Mr. Shirk said technology is rarely the only reason an adviser moves firms, but said it is playing a more prominent role in the decision. Mr. Shirk said large firms should emphasize the developments they are making in technology, as it is "a value proposition that is difficult for smaller competitors to replicate." However, B-Ds are still at a disadvantage technologically. Mr. Diamond said that technology from the wirehouses and in the RIA channel is usually better. "It's definitely an area where the regionals are playing catch-up," Mr. Diamond said. Cerulli reported that the small B-Ds are struggling with already thin profit margins to maintain modern technology, comply with new regulations and keep high-end advisers from going independent. As a result, many are joining larger independent broker-dealers to take advantage of scale and infrastructure while maintaining some degree of autonomy.

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