While returns on assets declined industrywide, asset growth at national and regional broker-dealers grew faster than any other advisor channel in 2017, new research shows.
It’s the first time in five years that independent RIAs failed to lead the pack, according U.S. Broker/Dealer Marketplace 2017 report from research and consulting firm Cerulli Associates. BD assets climbed 9.1% year-over-year, 1.9 percentage points quicker than the industry’s overall rate of 7.2%.
The gains come as wirehouses scale back recruiting deals, which had reached as high as 350% of an advisor’s previous year revenues, say researchers. Three of the top four firms have now announced cuts to their recruiting programs.
Top European banks, including Barclays and Deutsche Bank, are no longer competing for client assets. "Growth was partially driven by European banks exiting the U.S. private wealth business, which infused new assets into the channel,” says Kenton Shirk, director of Cerulli's intermediary practice.
Raymond James saw the most growth among BD networks with $100 billion or more in assets, according to Cerulli, thanks in part to its expansive recruiting. The firm brought on 60 new advisors in the third quarter of 2017 alone, according to company data.
After five years of the fastest growth in the industry, independent RIAs saw a 7.5% increase in assets. The challenges involved with opening an independent firm are a likely cause for the slowdown, the research suggests. Advisors might find it easier to move to an established practice with a robust infrastructure.
“Profitability among independent practices ranges substantially,” the report says. “Advisors also need to spend more of their own time managing day-to-day business needs as well as longer-term strategic decisions.”
Assets at the four largest firms — Wells Fargo, Merrill Lynch, Morgan Stanly and UBS — grew only 6.4%.
The top BDs also used size, and easily available equity, to expand into new markets, experts say. “Super-regional BDs are taking advantage of wirehouse slowdowns and moving into new markets,” says Rob Blevins, president of the Ohio-based recruiting firm Rowlette Executive Search, who was not a part of the study.
With low interest rates and a bullish market, firms are borrowing cash to expand their offices and take on more market share. “There’s available money out there to expand,” Blevins says. “Regional BDs are capitalizing.”
The transition to regional BDs is mostly about culture for advisors, according to the Cerulli survey, with 75% of respondents rating culture as a moderate or major factor in their decision to move.
“Regionals are just better equipped to get quick answers for clients,” says Mickey Wasserman of the consulting firm Michael Wasserman & Associates in Agoura Hills, California. “Advisors [at regional BDs] have all the same tools they need, but when they call someone within their organization, a person actually picks up.”
While advisors aren’t changing firms specifically because of technology, a strong platform is playing a larger role. “Large firms with sufficient scale should emphasize technology development and positioning as it will become increasingly important for advisor productivity and client experience, and it's a value proposition that is difficult for smaller competitors to replicate,” Shirk says.
Regional BDs now offer comparable, or better, technology platforms and a lot less bureaucracy, Wasserman says. “The wirehouse name itself used to hold a lot of weight,” he says. “That’s no longer the case.”