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.