The independent broker-dealer community received a stark and sobering message on Tuesday about the overall health of the industry.
A presentation by Cerulli Associates' Tyler Cloherty and Patrick Newcomb at the FSI One Voice Conference in San Diego focused on trends impacting the IBD space, specifically recruitment and market share, both of which IBDs are losing.
"From a general market stance, we are seeing IBDs lose headcount and market share to dually registered reps and RIAs," said Cloherty, Cerulli's associate director.
Surprisingly, IBDs are the net winners in recruiting, he added, but it's something of a pyrrhic victory, as they are getting lower-end advisors.
"It doesn't make sense for fee advisors to continue to pay a percentage to a broker-dealer, so they leave. IBDs are left serving small market reps, typically fall in the $10 million to $75 million range, with the majority at the lower end of that range."
Dually registered reps do in fact stay with the IBD for their commission-based business, but that only accounts for about 30% of the assets. More and more assets, Cloherty said, are going to their own RIA.
"The question becomes, 'What do IBDs have to provide in order to keep higher-end reps there?'" he noted. "Smaller IBDs who don't have the resources for high-end offerings—those with typically 50 to 250 reps—are getting crushed. What they're doing is loosening their compliance standards and offering products that larger firms might not offer, which isn't good in-and-of itself."
