Fidelity: M&A Activity Heats up for Independent Broker-Dealers
Fidelity Clearing & Custody Solutions released its latest merger and acquisition report, Insights from Independent Broker-Dealers, which found that IBD M&A activity is heating up as a result of major changes taking place in the channel, such as rising costs and lower advisor productivity.
Year-to-date, $136 billion in assets changed hands among independent broker-dealers as a result of five M&A deals, compared to $80 billion spread across 82 mergers and acquisitions among registered investment advisors during the same time period.
According to the report, costs are rising as broker-dealers make investments in technology, advisor education and oversight to comply with regulations. Additionally, lower advisor productivity is straining bottom lines – average assets per IBD advisor are $32.9 million, whereas Fidelity found that advisors at independent RIAs are twice as productive at $66.6 million.
“There are many emerging multi-billion dollar RIA firms, but they are still far behind the significant scale of the largest independent broker-dealers, which have substantial assets and advisor bases,” said Scott Slater, vice president, practice management and consulting, Fidelity Clearing & Custody Solutions. “So, while we are seeing fewer IBD deals compared to RIA deals, those that are taking place are significant, both in size and in how they are creating innovative business options and platforms for advisors.”
Large IBD acquirers with $10 billion+ in assets drove the five IBD M&A deals to-date and are helping to shape the channel into a concentration of a small number of large firms. LPL’s recent acquisition of National Planning Holdings was the largest by a landslide, as advisors within the NPH network of firms manage approximately $120 billion in client assets.
The top 10 IBD firms in the marketplace now manage 65 percent of all broker-dealer assets and 48 percent of all broker-dealer advisors.
The report also found that two IBD models will likely survive: those with scale that can increase profitability and reinvest in the business, and those with a compelling value proposition that can appeal to a niche part of the advisory market.
Fidelity Clearing & Custody Solutions is the division of Fidelity Investments that provides clearing and custody to broker-dealer firms, registered investment advisors, family offices, retirement recordkeepers and banks. Fidelity Investments had $6.4 trillion in assets under administration, including managed assets of $2.3 trillion as of August 31, 2017.
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