Independent Broker-Dealer Channel Experiencing Financial Adviser Exodus

Financial advisers continue to transition toward independent channels. Over the past decade, the fastest rate of growth in adviser headcount has occurred among firms in the independent registered investment adviser channels, largely at the expense of wirehouse firms. However, the independent broker-dealer channel also is facing an exodus to the RIA channels, according to the latest research from Cerulli Associates.

Cerulli’s research finds nearly one-third of independent broker-dealer advisers (32%) have considered opening an RIA in the past 12 months. Factors such as a higher payout, the ability to create enterprise value in an independent business, greater autonomy, and a desire to create a more personable culture are fueling their interest.

When it comes to joining an RIA, advisers are mixed on their preferred affiliation model and require education on the logistics involved in various options. More than one-third of independent broker-dealer advisers who considered establishing an RIA in the past year (36%) may retain affiliation with their current broker-dealer RIA platform but still would consider other options. Another 33% are unsure of their RIA affiliation preference and need additional information to understand which model would be the best fit for their practice.

In considering the transition to an independent or hybrid RIA, nearly half of advisers (46%) view the greater operational responsibilities associated with running an RIA as a major concern. Navigating factors such as staffing, technology, and compliance can weigh heavily on independent broker-dealer advisers making a move to full independence.

The decision for an adviser employed by an independent broker-dealer does not come without careful consideration. “Departing an employee [broker-dealer] is a daunting task for advisers who have spent their careers with this type of affiliation,” says Andrew Blake, associate director.

“Added accountability and the unfamiliar economics leave many new RIAs feeling spread too thin and unable to grow their practice as they had expected. For asset managers distributing in the RIA and [independent broker-dealer] channels, offering business consulting resources that can help advisers work through these challenges will be meaningful for developing a long-term partnership,” Blake added.

Headquartered in Boston, Cerulli Associates is an international research and consulting firm that provides financial institutions with guidance in strategic positioning and new business development.

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