In recent years, we’ve seen tremendous growth for both newly launched super OSJs and the independent advisors joining their ranks. We’ve also seen smaller broker-dealers choosing to wind down their broker-dealer platform, while remaining together under the same brand, leadership and advisor community as a super-OSJ—either through a sale of themselves to a larger broker-dealer network, or by transitioning themselves to an independent broker-dealer (IBD) that supports independent branches. 

Lately, we’ve even seen reports of a large super OSJ planning to leave one of the nation’s largest IBDs, in order to become a broker-dealer in its own right.

There’s no denying that super OSJs are under pressure from pricing wars and margin compression, which intensified over the past two years as the Department of Labor fiduciary rule took shape, even as multiple independent broker-dealers became increasingly hesitant about the extent to which supporting super-OSJs should be central to their forward strategies.

Indeed, before the recent court ruling overturning the DOL rule, much of the talk among industry pundits had been about how most, if not all, super OSJs are destined to go extinct in danger as certain of the largest independent broker-dealers began to aggressively revisit the economic terms of their arrangement with many of their affiliated super OSJs. Industry experts wondered if the super-OSJ model was doomed as a pure “margin play” under a post-DOL rule future.

But as is often the case, the industry punditry proved to be incorrect in its prophecies. Yes, super OSJs are evolving at a rapid pace. And as is always the case with any broad evolutionary trend, there will be winners and losers.

However, forecasting the future of the super-OSJ model’s viability requires assessing the present state of the super-OSJ space.

Payout Structure

Let’s start with a recognition that, no matter what industry commentators and certain senior home office executives might say publicly, super OSJs are fairly common at most IBDs, and many IBDs provide to their super OSJs a payout as high as 98 percent.

It’s also not uncommon for these same IBDs to give the average advisor who affiliates directly under its home office a much lower payout of 90 percent. If this advisor works through a super OSJ, then the IBD may keep only 2 percent of the advisor’s revenue instead of 10 percent. Meanwhile, the advisor might get a 92 percent payout from the super OSJ, which keeps just 6 percent of the advisor’s revenue. From the advisor’s perspective, what sounds like the better deal?

This example, based on fairly common numbers across the industry, highlights the profitability conflict for IBDs.

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