In Practice February 4, 2010

How Many Brokers Really Went Independent in 2009?

Top custodians said they attracted more advisers to independence in 2009.
Reported by

According to Discovery Database, which tracks movements among financial advisory firms, in 2009 more than 2,800 registered representatives “broke away” from a broker/dealer firm and moved to a registered investment advisory (RIA) firm. Interestingly, the majority of those reps came from independent and institutional B/Ds rather than wirehouses.

It turns out the speculation that many wirehouse brokers would choose to go to a RIA did not turn out to be true, Discovery noted. Almost half (48%) of wirehouse advisers who chose to move stayed within the wirehouse channel. The independent channel acquired a much smaller slice (13%).

Overall, 2009 saw more than 22,000 reps moved from one broker/dealer firm to another. Wirehouse brokers were the most mobile; an average of 37% of all movement per month came from a wirehouse broker/dealer, according to Discovery. (Mergers, such as Morgan Stanley Smith Barney and Wells Fargo Advisors, are not reflected in Discovery’s rep movement.)

RIA Custodians Report Successful Years

While wirehouse advisers did not leave their broker/dealers in droves, the top RIA custodians reported record years for attracting advisers to the independent channel.

Charles Schwab remains the leader in the space, with $590 billion of assets under custody, according to the firm. In 2009, Schwab Adviser Services said it had a “record year,” supporting 172 new advisory teams as they either started or joined an independent firm—a 40% increase from 2008.

Fidelity Investments said it helped a record 191 broker teams go independent—including not only RIAs, but also advisers who joined a broker/dealer client of National Financial, Fidelity’s clearing services arm. Fidelity Institutional Wealth Services had more than $370 billion in assets under custody as of September 30.

“While brokers have been going independent for years, 2009 will likely be looked upon as a watershed year for movement,” said Michael Durbin, president, Fidelity Institutional Wealth Services, in a Fidelity release. “With the current market situation, we expect there to be even more movement in 2010.”

TD AMERITRADE Institutional, which has just more than $100 billion of assets under custody, also reported a strong year in 2009. While it does not provide numbers of breakaway brokers, the firm said recruitment of breakaway brokers was up 30% over 2008.

Data & Research February 4, 2010

Advisers Say How Fiduciary Standard Could Change Business

If implemented, financial advisers said a fiduciary standard would put an increased focus on financial planning and fee-based advisory services, according to an industry report.
Reported by

Events such as the financial crisis and the discovery of Ponzi schemes have put increased attention on the regulation of financial advisers. As Congress and regulators evaluate changes to make to the retail securities space, one proposal is to make registered representatives adhere to a fiduciary standard, to which registered investment advisers (RIAs) already adhere (see “House Panel Passes Investor Protection Act”).

Research from Aite Group found that the majority of surveyed advisers (84% retail brokers and 16% fee-only RIAs) give the regulatory initiative a less than 50% chance of being put into place. Only 16% are fully convinced that the fiduciary standard will be implemented, citing the following as obstacles: loss of momentum once the economy recovers (22%), opposition from the brokerage industry (22%), and disagreement between the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) (17%).

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

If the measure does pass, 40% of advisers believe it will help rebuild the investor’s trust (26% disagree). However, advisers are split as to whether a fiduciary standard would help prevent another Ponzi scheme: While 34% of advisers agree that it would help, nearly 40% disagree.

Changing Adviser Business

The fiduciary status of RIAs is often looked at as a competitive advantage over brokers. The largest number (44%) of surveyed RIAs do not think they will lose their competitive advantage if a fiduciary standard for brokers is implemented—but almost a third (29%) are unsure, and more than a quarter (26%) think they will lose an advantage, according to the Aite report.

"While independent RIAs have long cited the fiduciary standards of their industry as a major differentiator, its implementation for retail brokers could remove it as such," said Alois Pirker, research director with Aite Group and author of the report, in a release. "Brokers believe that a fiduciary standard would lead to an advice model very similar to the one utilized by independent RIAs. RIAs, on the other hand, believe that brokers would have a hard time adjusting to the requirements of a fiduciary standard, and that they themselves will not lose their competitive fiduciary advantage as a result of this measure."

Advisers also cite other changes that a fiduciary standard could bring. Surveyed advisers, especially RIAs, predict that implementing a fiduciary standard would result in brokers being allowed to offer financial a planning advice, which would increase the use of financial planning (48% of RIAs, 40% of brokers). Going along with that, many surveyed advisers believe a fiduciary standard will lead to more a focus on investment risks rather than investment-return-driven product selection (56% of RIAs, 41% of brokers).

A fiduciary standard could also change how brokers get paid. The report noted that many brokerage firms, such as Morgan Stanley Smith Barney, have managed to offer fee-based products without turning their entire broker force into fiduciaries. Close to half of all surveyed advisers said a fiduciary standard would result in more such fee-based assets at brokerage firms (58% of RIAs, 45% of brokers).

Aite based its study on a survey of 402 financial advisers conducted in Q4.

More information about the report is available at www.aitegroup.com

.

«