Will some IBDs go the way of the VCR?
Associate editor Tobias Salinger was intrigued. When researching Financial Planning’s FP50 annual ranking of the country’s top independent broker-dealers, he discovered seven IBDs launched in 1968 — the highest number of any year for FP50-ranked firms.
Somehow, this tumultuous period, defined in part by the Vietnam War, the assassination of Martin Luther King Jr. and the space race, had spawned more members of the FP50 than any other.
Why this year? Captured by images of social tumult, many forget that 1968 also brought stock market gains and the soaring popularity of mutual funds. Fledgling IBDs saw an opportunity to add investment offerings to traditional insurance businesses. In doing so, they led the way in creating a new sector of financial services, Salinger writes in “The Class of ’68.”
But can this class endure another half-century?
“The larger, well-capitalized ones will definitely survive and thrive,” Salinger tells me. “They have the scale and service needed to hang on to advisors. However, we will certainly be seeing members of the Class of ’68 and other years absorbing each other. There’s a decent likelihood that most of these companies will go the way of the VCR and the tape deck by 2068.”
Competition and fee pressure are the biggest challenges. “IBDs helped create the modern financial advisor, but now they find themselves very much needing to please the advisor and client to stay in the fold,” Salinger notes.
Firms will also need sustainable, well-capitalized ownership and a strong advisory platform to persist until 2068, or even 2028. “Some have moved more quickly and seamlessly into fee-only services from their more transactional roots, but the RIA opportunity will quickly pass them by if they’re still trying to catch up,” he tells me.
The advisors who entered the field in the late ‘70s and early ‘80s were “pioneers,” Salinger says. It looks like BDs will need to fully embrace that pioneer spirit once again.