Broker-dealer growth is being hampered by the growth of independent and hybrid RIA channels, according to a recent publication from Cerulli Associates.

While insurance broker-dealers have been the slowest-growing advisor channel over five- and 10-year periods ending in 2021, wirehouses are also experiencing slowing growth, according to Cerulli’s report, “U.S. Broker/Dealer Marketplace 2022: Evolving Approaches to Advisor Recruitment and Affiliation.” Furthermore, wirehouses are the most at risk of losing advisors.

If they were to switch firms today, 71% of advisors would prefer an independent affiliation, according to Cerulli. Among wirehouse advisors, the top reasons for wanting to change include greater autonomy (cited by 62% of them) and higher payout (cited by 57%).

As a result, the non-independent space has lost market share; while it enjoyed a 64.8% share in 2016, that fell to 61.2% in 2021, while the independent space has picked up its share, which rose from 35.2% in 2016 to 38.8% in 2021.

Still, 61% of advisor affiliation changes occur between two firms in the same channel, most often because of an advisor’s satisfaction (or lack thereof) with a firm’s products, services and support.

The fastest growing advisor channels by advisor assets are hybrid RIAs (which enjoyed a 15.7% five-year compound annual growth rate and a 10-year rate of 13.6%) and independent RIAs (whose five-year compound annual growth rate was 15.8% and whose 10-year rate was 12.8%).

The slowest growing channels by advisor assets have been insurance broker-dealers (whose compound annual growth rates were 7.4% for both the five and 10-year periods) and wirehouses, (which saw a five-year growth rate of 9.5% and a 10-year rate of 7.4%).

“Generating net growth in advisor affiliations has been a challenge for many broker-dealers during the recent past for a number of reasons, not the least of which includes increased competition from alternative affiliation options such as independent and hybrid registered investment advisor affiliation,” said the report. “Firms that are laser-focused on maximizing the quality of capabilities they offer to advisors in terms of their products, services and support, and who offer flexibility in affiliation options, are most likely to succeed in recruiting and retaining top advisor talent.”

Wirehouse Strength Endures
Wirehouses still have their place, according to Cerulli. They enjoy advantages in scale and resources that have helped them retain affluent and high-net-worth clientele.

The average advisor’s assets under management across all retail channels is $106.3 million, ranging from a low of $23 million for insurance broker-dealers and $68 million for independent broker-dealers to a high of $244 million at wirehouses, according to the report.

More than a quarter of wirehouse practices, 29%, have a core clientele of high-net-worth households with more than $5 million in net worth, and nearly 41% concentrate on clients with assets of $2 million or more.

To maintain their high-net-worth focus, wirehouse practices tend to be more sophisticated on average than practices in other channels, according to Cerulli, with 19% meeting the researchers’ most advanced firm classification—that of “wealth manager”—while the industry average for those in that group is around 2%. For example, among independent broker-dealer advisors, 2% of practices are wealth managers, while most, 55%, are in the category of “investment planners.”

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