Independent Threat To Wirehouses Mushrooms
Independent broker-dealers have become an increasingly competitive
threat to wirehouses and regional brokers, with more than $10 billion
in revenues and 96,000 independent reps, according to a new study.
There are now more than 1,000 independent broker-dealers, according to
Tiburon Strategic Advisors. "The independent broker-dealer industry has
been getting stronger and independent broker-dealers have been gaining
market share," according to the study, which also noted that
independents maintained volume and profitability during the down market.
Noting that the industry benefited from consolidation in the 1990s, the
study says the independent market has been focused on growing business
and retaining clients. Recent stock research and IPO scandals probably
have contributed to growth among independents, which depends on
business from clients who are dissatisfied with wirehouses and regional
firms.
The study found, for example, that 53% of independent reps' clients are
people who were dissatisfied with their previous advisor.
Looking at the period covering 1995 to 2004, RIAs, independent reps and
discount brokers have been gaining market share, mostly at the expense
of banks and insurance companies, says Charles "Chip" Roame, managing
principal of Tiburon. Full-service brokers, encompassing the wirehouse
and regional firms, have remained relatively flat, he adds.
When looking at annual changes in client assets at the period studied,
RIAs led with a 14% annualized growth rate, independent reps were
second at 12% and discount brokers were third at 11%, according to
Roame. Full-service brokers experienced a 7% growth rate, while banks
and insurance companies saw annual client asset increases of only 4%
and 1% respectively. "The bank and insurance space is so large that
when they lose, the smaller guys can pick up a lot," Roame says.
Revenues for independent broker-dealers now total more than $10
billion, which is up 20% since 2001, according to the study. Industry
revenues have grown from $8.2 billion in 2001 and 2002 to $8.6 billion
in 2003 to $10.2 billion in 2004.
The data does not include Ameriprise Financial and other unknown small
independents. Moreover, during the 2001-2002 period, wirehouses were
experiencing 20% to 40% declines in retail revenues.
Industry executives continue to believe their chief selling points are
unbiased research, nonproprietary products and a full range of
investment choices, according to the study. Independents have also
started to benefit from the fact that wirehouses and fee-only advisors
continue to move up the wealth ladder. That, according to the study,
has given independents room to serve clients at the middle and lower
ends of the asset scale.
Seven Million Americans Working After Retirement
People are apparently doing more than talking about working after
retirement. A recent study, in fact, says about seven million people
have done it, and that's before the first of 76 million baby boomers
reaches the age of 60.
The study, sponsored by Putnam Investments, says that about seven
million previously retired U.S. citizens have returned to work after an
average retirement period of one-and-a-half years. The "working
retired," as the study puts it, now represent about 10% of the U.S.
workforce composed of those at age 40 or more, according to the study.
The study also found retirees expressed different reasons for returning
to work. Two-thirds of working retirees said they returned to work
because they wanted to, while one-third said they did it out of
economic necessity.
The study is based on responses from 1,726 retirees who are working.
The estimate of seven million working retirees was arrived at through
screening random samples of working people over 40 years of age.
"Our study shows retirement in the United States has already moved far
beyond ending work at age 65, gold watches and early-bird specials,"
says William T. Connolly, head of retail management at Putnam. "For
many, retirement is just a planned pause before resuming a career.
These working retired are, by our estimate, now almost one-third of all
American retirees."
The working retiree has an average age of 61 and an average household
income of $87,000-which is 60% higher than that of traditional
nonworking retirees. About 54% work part time, 36% work full time and
10% are looking for work.
More than half, 60%, still carry a mortgage with an average equity of
47%. Working retirees have average investable assets of about $400,000.
Retirement Income Association Is Formed
Noting the first baby boomer will turn 60 on January 1, financial
service industry executives have formed a new group to focus on retiree
income needs.
The Retirement Income Industry Association (RIIA) will focus on the
financial and public policy issues related to the income needs of
retirees, say its founders.
"Until now, Americans in their fifties have focused on wealth
accumulation," says Francois Gadenne, president and CEO of Retirement
Engineering Inc. and founding chairman of RIIA. "But as these Americans
enter or prepare to enter retirement, they have to shift their focus
and begin thinking about how to turn the wealth they have accumulated
into secure retirement income."
The group is based in Washington, D.C., and will draw members from all
segments of the financial services industry, Gadenne says. The group
will serve as a think tank for analyzing retirement income issues and
an incubator for the development of innovative
retirement-income-related products and services, the group says.
The group lists its four priorities as:
Serving as a forum for senior executives in the financial services
industry to share information and use their expertise to identify
retirement income issues and develop solutions.
Providing information, training and educational programs to broaden
the understanding of America's retirement income needs and the key
components of retirement income planning.
Creating and maintaining a database of information on trends in the
development and distribution of retirement income products and services.
Focusing attention on key retirement income issues
and promoting products, services and policies that address them.
Most Americans Don't Know Investment Basics, Study Finds
Although Americans are starting to get the message when it comes to
investor basics, many people are still lacking the "survival skills"
necessary to build a retirement nest egg, according to a new study.
The Securities Investor Protection Corporation (SIPC) and the Investor
Protection Trust (IPT) tested 635 self-proclaimed investors-a group
screened from an initial survey of 2,063 adults-on key investment
knowledge and behavior.
The two organizations say that 83% of the test takers failed, and that
women were more likely to fail than men by a margin of 91% to 77%.
In an example of how the group performed, only 21% said they practice
all four of the desirable behavioral traits focused on in the survey:
reading prospectuses, regularly reviewing account statements, checking
out the disciplinary backgrounds of brokers/financial planners and
having a financial plan in place.
About 80% of the investors mistakenly believe they are insured against
investment fraud losses, says SIPC President Stephen Harbeck.
"These findings indicate just how big a job remains in front of
organizations such as SIPC that are committed to investor education,"
Harbeck says. "When four out of five Americans mistakenly think that
there is an agency out there somewhere that insures them against
investment fraud losses, we obviously have our work cut out for us."
There were some encouraging results, according to the two groups.
Ninety percent of the investors said they regularly review their
brokerage account and/or mutual fund statements. Also, 74% demonstrated
that they understand the concept of diversification.
Among the other findings:
Only about 36% of investors have checked the disciplinary backgrounds
of their stockbroker and/or financial planner; 70% said they did not
check their advisors' backgrounds because they either trusted the
individuals or were assured by them that there were no problems.
Only 8% of investors understood that no agency or organization
"insures you against losing money as the result of fraud in your
investment portfolio."
Fewer than two in five investors, 39%, understand how sales fees and
commissions work in the no-load mutual fund industry. And only 41%
understand the basic rule of bond investing, that as interest rates go
up bond prices tend to fall.