Close observers will find that we took a different path this year with our Independent Broker / Dealer Report Card.
The annual exercise – a survey of consultants who partner with independent brokers / dealers to measure their satisfaction with the companies – has become less and less useful over the years. Finally, most of the consultants associated with an independent broker / dealer give their companies high marks. Otherwise these advisors probably wouldn’t be there. As a rule, the consultants’ mood changes noticeably in relation to their company in the course of an acquisition, a change in management or a scandal.
For the first time, we don’t break down or rank the results by company. Instead, we use the 1,000+ respondents to measure satisfaction with the IBD business channel itself. (However, individual companies interested in delving deeper and comparing their results with our published benchmark should contact me or the publisher.)
In a broader sense, the independent broker / dealer unit itself is changing. What began as an innovative business model that emerged from the insurance world to enable brokers to sell securities alongside policies – an early entry into “holistic” financial planning – fell the shift from transactional business to packaged portfolios and paid portfolios to the victim of planning.
There are many data points on the demise of the traditional IBD channel, but what is less quantifiable is how some of these companies are reacting by shedding the old broker / dealer skin and emerging as new companies with multiple affiliation options.
Look at LPL; Do we still view LPL as an independent broker / dealer or do we need a new name? It is a custodian and is building a platform for pure RIAs. The Commonwealth also now supports pure RIAs. Raymond James recently merged a number of businesses into one RIA and Custody Services business. The lines between traditional broker / dealer and RIA are becoming more and more blurred.
What drives change is the individual advisor. In our research, it is clear that a lack of business support most often causes consultants to jump from one IBD firm to another – or leave the channel altogether. The vast majority already do more fee business than commission business, and over 80% consider themselves trustees. Hence, it is not the institution per se that drives them out. Rather, it is a question of whether the institution can support the business in which these advisors want to be active.
Many IBDs won’t make the transition. However, some deploy the parts and evolve faster than the regulatory definitions under which they operate. The transformation of the traditional broker / dealer business will be a dominant story in this industry over the next few years.