Time to pursue independence is nigh, say brokers

More than four in ten survey respondents reported plans to make their move within the next year

Time to pursue independence is nigh, say brokers

As the financial-advice industry continues to shift toward a fee-based model, the pressure to reduce fees remains a challenge as cost consciousness prevails among many clients. That pressure isn’t so intense among elite financial professionals, who command good pricing power by providing valuable services with the clients’ interests in mind.

That isn’t so easy in an environment where the advisor isn’t in control, which likely explains the results of a survey recently released by TD Ameritrade Institutional in the US. According to the survey, 44% of brokers at national and regional firms or independent broker-dealers who want to move to the independent registered investment advisor (RIA) channel plan to do so within the next 12 months.

“The independent path remains top of mind for brokers,” Scott Collins, managing director of institutional consulting for TD Ameritrade International, said in a statement. “It’s not hard to see why: Independent RIAs can provide comprehensive, professional advice and they have an alignment of values and interests with their clients.”

Potential breakaways, defined as brokers who indicated plans to go independent within two to three years, cited a need for more control over their business (34%) and higher compensation (34%). They also cited challenges at their current firms that affect their ability to attract clients or increase revenue, including a tight regulatory environment (65%), pricing pressure (46%), consolidation/M&A activity (29%), and public trust issues (28%).

The biggest dissatisfaction cited by brokers stemmed from the corporate culture at their current firm (43% said they were “not satisfied” with their firm’s culture), followed closely by its leadership and strategic direction (42% not satisfied). Compensation appeared to be the least of their concerns, with only 33% saying they were not satisfied with what they earned currently.

Monetary motives also don’t appear to be top of mind among potential breakaways. While 66% expected about the same or better compensation in the independent RIA channel, over a third said they would move for a modest bump (up to 20% more); another 15% said their reason to break away isn’t financial.

The survey also found a tendency for potential breakaways to eschew a solo path to independence. When asked to describe their ideal path to becoming an independent RIA, 36% said they would like to acquire or merge with another business, another 33% said they want to join an existing firm, and 10% are envisioning a partnership with a company that provides technology and other support. Just over a fifth (21%) said they would start their own business. 

Nearly all potential breakaways (99%) also held a deep conviction that their clients trust them personally. Perceptions about the independent path were generally rosy, with most agreeing that they will make more money (88%), be able to grow without a big national brand name (75%), don’t have to worry about giving up their securities licenses (75%) or commissions-based income (68%), and have a large-enough practice to be an RIA (56%).

That doesn’t mean they’re taking the leap lightly. Potential breakaways pointed to numerous hurdles, including inopportune timing during heightened market volatility or market downturns (57%), an impression that transitioning would be too difficult (54%), and a belief that managing legal/compliance issues will be too hard (51%).


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