The Pulse

Excess Demand For Independence Challenges Broker/Dealer Growth

Increased competition from alternative affiliation options such as independent and hybrid RIA affiliation challenge B/D growth

A new report from Cerulli Associates provides B/Ds and custodians a method to benchmark against their competitors and insights into how they are reacting to key opportunities. The report also helps asset managers and other third parties identify which are the fastest-growing B/Ds are and what the growth drivers are.

December 15, 2022, BOSTON—Generating net growth in advisor affiliations has been a challenge for many broker/dealers (B/Ds) as increased competition from alternative affiliation options such as independent and hybrid registered investment advisor (RIA) affiliation gain popularity among financial advisors, according to The Cerulli Report: U.S. Broker/Dealer Marketplace 2022: Evolving Approaches to Advisor Recruitment and Affiliation.

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. Among the challenges of operating at wirehouse firms identified by these advisors, 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,” says Michael Rose, associate director.

On average, 71% of all advisors identify a preference for independent affiliation—including independent broker/dealer (IBD), hybrid RIA, and independent RIA affiliation—in the event that they were to change firms, compared to only 44% of advisors who are currently 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,” says Rose. 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% and 2.0%, respectively, over the last five years. Most employee B/D advisors identify greater autonomy (62%), a higher payout (57%), and the ability to build financial value in an independent business (54%) 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 payout 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. The research also finds that technology has a tremendous impact on advisor recruiting and retention. Technology (56%) and the level of autonomy/control over how they serve their clients (50%) are the most frequently identified factors that would influence an advisor’s decision to choose to affiliate with a B/D. “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,” says Rose. “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 concludes.




About Cerulli Associates
For over 30 years, Cerulli has provided global asset and wealth management firms with unmatched, actionable insights.
Headquartered in Boston with fully staffed offices in London and Singapore, Cerulli Associates is a global research and consulting firm that provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments.