In an ever-competitive landscape, broker-dealers are continuing to make changes in how they attract clients and talent, and some of those changes are here to stay, according to Cerulli Associates’ Broker/Dealer Marketplace 2021 survey.
Two growing trends—promoting team-based practices and offering a full range of financial planning services to attract clients—are in some ways two sides of the same coin, said Michael Rose, associate director in Cerulli's wealth management group, which managed the survey.
“As comprehensive wealth management is adopted in the space as a service, having a team structure is supportive of that. Multiple people can bring different experience and expertise to provide value to clients,” Rose said. “And more clients are interested in the comprehensive approach.”
At the same time, one of the key drivers for teaming is succession planning. By developing a group of talent that can succeed the business when the founder retires, broker-dealers are ensuring that continuity of profitability. Recognizing the benefits of team-based practices, both in the clients’ eyes and their own, broker-dealers are increasingly using compensation structures to push this growth, Cerulli said.
“When it comes to compensation structures, every single broker-dealer has a unique grid, and they can be fairly complex in terms of how total compensation is calculated,” Rose said. “But now more broker-dealers have teaming reflected in the compensation grid. If you’re working in a team, your compensation can be boosted.”
The Cerulli survey will now track the percentages of advisor type, including solo, peer team, hierarchy team with a single leader and hierarchy team with multiple leaders, in the various broker-dealer channel, including wirehouses, national, regional and international firms, insurance companies and retail banks.
For last year, team practices collectively edged out the solo practices in wirehouses, national and regional broker-dealers and insurance companies. Team practices and solo practices split the arena 50-50 in international, and when it came to retail banks, solo practices commanded 64% of the landscape.
Going forward, Rose said he expects the balance to continue to tip in teaming’s favor.
“To what extent financial incentives drive change, it’s hard to say. And broker-dealers hold their cards very close to the vest,” he said. “But this is definitely a trend that’s evolving in a specific direction. There is a slow, consistent move toward greater adoptions of teaming across all channels in response to its success.”
In addition to providing great stability for the advisory businesses themselves, teaming is something clients respond to as well. While many broker-dealers historically have emphasized asset management as their primary service, they’ve also realized that firms which also offer a full-range of financial planning have a larger share of client assets and client retention, the survey said.
“Having a strong team does add value to client issues,” Rose said. “So this does seem to be a natural evolution among broker-dealers interested in client retention.”