Moving Chess Pieces

This is a great year to be looking for a new independent broker-dealer

By Karen DeMasters/

Shake-ups continue to embroil the space. Large and small advisory firms and independent advisors are jumping ship from their old firms to find new independent broker-dealers to assist them.

And the leadership at large broker-dealers looks like a constantly shifting chessboard, as executives are poached by rival firms. Add to that the fact that broker-dealers’ fees are being compressed and they face changing regulations. That’s a lot of changes to keep advisors and firms on their toes.

Jodie Papike, executive vice president at Cross-Search, an independent broker-dealer advisor and executive placement firm, says it’s a good market for those advisors looking to move.

“Broker-dealers are offering up-front money, enhanced payouts and picking up expenses. It is a very competitive market for broker-dealers. When selecting a broker-dealer, advisors have to decide how much independence they want” and how big a broker-dealer they want to associate with, she says.

As the space becomes more competitive, the offers to successful advisors become more lucrative. Individual IBDs do not like to say what specifically they are offering, but the incentive packages, including forgivable loans, are beginning to raise eyebrows.

The influence of private equity firms circling around independent broker-dealers is also being felt. The U.S. is still one of the few safe havens for investments, and private equity firms are looking on it favorably and making what seem like rich offers for IBDs.

Because of Donald Trump’s unexpected win in the 2016 election, private equity firms see this as an industry likely to benefit from deregulation. That will also improve the investment picture, they say.

In this new regime, larger broker-dealers will get bigger. Smaller broker-dealers will serve niche advisory markets. As far as midsize IBDs, there’s disagreement about whether there will be room for them in the industry in the future.

But Papike says she is a fan of those midsize B-Ds, and believes firms of quality will emerge in the space. “The question is whether the small and midsize IBD is still in a position to grow” and help advisors under them grow, she says. “Whether the midsize IBD makes it or not will depend on how they recruit advisors.”

Because of all the shake-ups among independent broker-dealers in the last year and a half, the ownership structure of IBDs has become important to migrating advisors. “Advisors want to know if the broker-dealer is going to be sold again soon or consolidated. Where is the IBD they are joining going to be in three, five or 10 years?” Papike asks.

Large broker-dealers continue to attract large advisory firms. The acquisition of Signator by Advisor Group, which already has four large firms under its umbrella, was announced in June and is big enough that it could reshape the market. The deal is part of an industry trend of insurance companies, in this case John Hancock, ridding themselves of advisory services.

Signator is slated to be combined by the end of this year with Advisor Group’s Royal Alliance to create a firm with more than $900 million in annual revenue and nearly 3,600 advisors. Advisor Group’s CEO and President Jamie Price says consideration was given to adding Signator as a stand-alone company, but Signator and Royal Alliance are an excellent fit, so consolidating seemed like a better option.

“Royal Alliance has proven they can operate as a Super OSJ, so we are doubling down on that.” Although other large broker-dealers have had problems retaining advisors from firms they acquire, Price says, “We hope to keep all of the 1,800 advisors at Signator. We also talked about how big is too big, but scale gives you an advantage.”

Price is not as sure as Papike that there will be room for midsize IBDs in the future.

“The landscape is changing. We’re going to wake up four or five years from now and the industry will look like a barbell with large and small broker-dealers. Right now, the middle is trying hard to stay relevant.”

A fiduciary standard is taking hold throughout the industry, even though it will no longer come with the force of a (defunct) rule by the Department of Labor. Fees will become more transparent anyway, and thus more compressed for broker-dealers and their advisors. Price says Advisor Group is dealing with that by bundling its fees to stay ahead of the structural nature of the fiduciary era, rather than having a lot of small fees.

Although the DOL’s rule is no longer there to complicate advisors’ lives, the Securities and Exchange Commission is working on its own rules, and any increase in regulations makes advisors look to a broker-dealer to help with the paperwork, which further inspires IBD growth, a number of IBD executives point out.

Technology does the same thing, they say. If advisors want to continue to spend time with clients, they need someone to handle the nitty-gritty.

“A combination of things is driving the disruption in the industry. Whenever there is pressure on the industry, whether real or perceived, it creates movement,” says Gregg Johnson, executive vice president of branch office development and acquisition for Securities America, one of the Ladenburg Thalmann companies.

“The market is competitive right now, but we have been in a strong position with record growth for four straight years. Technology is always on the short list for advisors when they are thinking of making a change—it is critical—and we have always invested heavily in technology,” Johnson says.

Advisors always have to decide “if the pain of staying where they are is greater than the pain of moving. The trend of advisors leaving the employee channel to be independent will continue,” which is good for broker-dealers who want to grow, Johnson adds.

Broker-dealers offer simplicity of moving as an enticement, says Andrew Daniels, managing principal of business development at Commonwealth Financial Network, based in Waltham, Mass., and San Diego. “There is an unfounded concern among some wirehouse advisors that it is a Herculean task to go independent. That fear of the unknown causes inertia. After they move, most of the advisors we recruit say they wish they had moved sooner,” Daniels says.

For advisors who are already on their own, the size of some broker-dealers can be a put-off, Daniels says. LPL Financial, the largest independent B-D, lost more than a few advisors when it took over National Planning Holdings’ four broker-dealers, and the fallout from that deal is still ongoing.

“Bigger is not always better,” says Daniels. “Most advisors who come to us are looking for the same things they want to give their clients—a long history of slow and steady growth.”

One of the things Commonwealth offers advisors is a glide path to the fee-only space to keep pace with the trend toward transparent fiduciary services, he adds. Commonwealth is apparently doing something right as it has been named the highest in independent advisor satisfaction by J.D. Power five years in a row. It also is part of the trend of many IBDs that have been changing executive leadership in recent months.

It was announced in June that Commonwealth’s chief financial officer, Trap Kloman, will become president and chief operating officer at the end of the year. Other firms have announced similar moves, all of which keep the industry in the news and top-of-mind for advisors.

Raymond James Financial Services is promoting Jodi Perry to president of the Independent Contractor Division, a newly created position, after appointing her national director only a few months ago. She is now the highest-ranking executive overseeing independent advisors at Raymond James. The move is part of a succession plan that moved her boss, Scott Curtis, up the corporate ladder to president of the Private Client Group.

Securities America lured Jim Meyers from Ameriprise to be its chief operating officer, and Atria Wealth Solutions, the parent company of three IBDs, including recently acquired Cadaret, Grant & Co., snatched Matthew Bassuk from Cetera Financial Group to run its national recruiting efforts.

Similarly, Cetera Financial Group announced in May it was hiring LPL Financial veteran Michael Murray as head of business development. LPL Finance’s president of business development, Bill Morrissey, will retire later this year to be replaced by the chief digital officer from UBS Wealth Management USA, Richard Steinmeier, at a time when LPL is trying to hold onto its recently acquired advisors. Morrissey helped LPL grow from 6,500 advisors in 2005 to more than 16,000.

“Advisors consider changes at the top of IBDs [when they think of changing broker-dealers], but they know some change is inevitable,” says Craig Kamis, executive vice president of business development at LPL Financial. “They look for continuity of mission and value proposition within the firm. We have had great success recruiting independent advisors and from banks, wirehouses and insurance companies. What we can offer is to help grow their business.

“We will continue to see consolidation in the industry in the future,” he predicts. “Scale matters more today than it did 10 years ago. These are interesting times and I like our chances. LPL is the market leader and we are publicly traded. Other IBDs are owned by private equity, which creates uncertainty. The competition is always going to be there, but a lot of consolidation works to our benefit.”

Others are equally as confident of their recruiting abilities, including the two-year-old holding company Atria, which has acquired three firms since November. Starting with sister IBDs in San Diego, Cuso Financial Services, which concentrates on the credit union market, and Sorrento Pacific Financial, which focuses on banks, Atria got off to a fast start. It then added Cadaret, Grant in Syracuse, N.Y., with $23 billion under administration.

“The industry is changing more rapidly now. If a firm is not building in digital and building with an eye to the future, it will not be a part of that future,” says Doug Ketterer, founding partner of Atria along with Eugene Elias, both former Morgan Stanley alumni, and Kevin Beard of AIG Advisor Group. “Digital is not just for millennials, it is across generations. Years ago, advisor firms just wanted a little back office help. Now they want a partner to help them grow with technology.”

Technology and compliance have almost become a mantra when IBDs are asked what is driving the consolidations, no matter the size of the IBD that is looking for more recruits.

“Scale is the name of the game for attracting firms, but how you achieve scale is critical to the service you provide,” says James Poer, CEO of Kestra Financial in Austin, Texas.

Spun off from NFP only two years ago, Kestra actually has had four years of strong growth in what Poer says is a competitive environment. “Very large broker-dealers are struggling to provide the kind of culture we can offer. Advisors are entrepreneurs; they need to concentrate on that,” Poer says.

The movement in the industry is ongoing, the IBD executives agree.

“This is such a disruptive business environment with so many different forces at play—regulations, technology, the aging demographics of advisors—that the consolidation will continue,” predicts Nathan Stibbs, chief strategy officer at Triad Advisors, a Ladenburg Thalmann company. “These factors are all coming together to make advisors rethink their positions, but massive consolidations create challenges at every level, which gives Triad Advisors new opportunities to recruit.”