Fewer than 40K advisors joined BD industry in 2019

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While the vast majority of financial advisors are still registered with FINRA, the organization is losing even more traction with the broker-dealer channel.

Fewer than 40,000 reps joined the brokerage industry last year — the lowest number of FINRA registrations since at least 2005, the earliest year included in FINRA's report. That year there were more than 63,000 new entrants.

Even as fewer reps register, a steady flow of planners is exiting. More than 44,000 advisors dropped their FINRA licenses in 2019. While that number has been falling since 2016, when over 47,000 brokers left the brokerage industry, it’s still outpacing the number of reps entering.

The decline in registrations signals the increasing popularity of the fee-only model, as financial services giants build out — or buy — RIA channels and huge-AUM teams jump to independence.

Over the last few months alone, LPL Financial and Raymond James reeled in teams that oversaw $12 billion and $4 billion, respectively. Wirehouses have been losing a steady stream of advisors to the independent channel.

“We've seen the marketplace, not only in the RIA market, but the independent broker-dealer channel growing very quickly,” says Kelly Ryan, head of independent wealth management at State Street.

Ryan’s team, which leads the asset manager’s distribution efforts with IBDs, RIAs and custodians, is now about the same size as the group at State Street that targets the regional BDs and wirehouses, she says.

However, most SEC-registered independent financial advisors still have Series 7 licenses. Only 9% of financial advisors are registered with the SEC alone, slightly up from 8% in 2017, according to FINRA’s first industry snapshot. The dual-registered model is more preferred , with 43% of advisors registered with both the SEC and FINRA. About 91% of financial advisors are registered with FINRA in some capacity, according to the regulator, although this doesn’t include state-registered advisors.

Some advisors, however, are wary of what they perceive as conflicts of interest at dually registered firms. For instance, former advisors from IBD Northwestern Mutual, which ties advisor compensation to insurance sales, say firm policies jeopardized their fiduciary responsibility to clients, although the company says they do not and that its integrated compensation grid reflects the role played by insurance and investments in providing for financial security.

The impact of 12b-1 fees, revenue sharing and affiliated fund family relationships on advisory services can be problematic in the dually registered model, according to academic research by Northeastern University Professor Nicole Boyson.

These concerns, in part, are driving advisors’ move to a fee-only model. To meet demand, firms including Commonwealth Financial Network and Cambridge Investment Research are boosting their RIA offerings.

Goldman Sachs acquired custodian Folio Financial. The deal followed its acquisition of the RIA United Capital.

But the diminished number of broker-dealer registrants may impact FINRA’s annual revenue, as the regulator makes money off of charges including per-rep fees. Earlier this year FINRA said it would raise its member fees, although it didn’t specify which ones. The change would happen incrementally, and not until at least 2022, according to the regulatory agency.

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Broker dealers FINRA Fee-based compensation SEC Independent BDs Going independent RIAs