As we compiled this year’s annual FP50 rankings, editors and writers pored through the data for signs of industry change. Several shifts were apparent. One of the most dramatic? A sharp move toward fee-based revenue.
This swing represents “the changing of the guard within the industry,” contributing writer Craig L. Israelsen, who helped analyze the data, tells me. Among the top 50 firms, commission revenue fell by about 2.5%, on average, whereas fee revenue increased by about 10%. Next year, Israelsen expects “more of the same — fee revenue increasing and commission revenue on the decrease.”
Overall, there was a drop in revenue for the group — the first decline since the 2008-09 financial crisis —illustrating the many pressures bearing down on IBDs. Next year could bring another decline as firms incorporate the requirements of the Department of Labor’s fiduciary rule, according to senior editor Ann Marsh, who wrote the cover story.
“I wouldn’t be surprised if there were another drop in overall revenues for this space next year as firms absorb the costs of coming into compliance,” Marsh says. More dramatically, she adds, smaller IBDs are likely to disappear and “many advisors will quit the field.”
The IBDs that remain may come to resemble the RIAs that pioneered fee-only advice, Marsh’s sources told her. “I suspect the ongoing blurring of distinctions between RIAs and IBDs will raise big questions about how the country’s regulatory regime is constructed, with separate regulators for brokerages and RIAs,” she says.
To the winners go the spoils, however. Baby boomers are retiring in droves and need advice from a shrinking pool of advisers. Firms that focus on niche practices can reap the benefits. Take No. 17, H.D. Vest Financial Services, for example. The firm, which specializes in helping accountants expand their businesses to holistic planning, posted almost 5% revenue growth last year.
The fiduciary rule offers challenges, but also opportunities. “The firms that adapt to [regulatory] changes and provide tools to advisers, those are the firms that will succeed and thrive going into the future,” says Scott Curtis, the president of Raymond James Financial Services. The firm was one of several that posted an increase in revenue of more than 10%. What else may the future hold for the industry? Please see our story, FP 50: A shakeout is coming for the nation’s biggest IBDs, and related charts.