Consolidation is occurring at a breakneck pace in almost every industry, and broker-dealers are no exception.
The top-25 advisor-intermediated firms continue to account for a disproportionate share of total retail financial advisor assets under management (AUM), while wirehouse firms continue to dominate the marketplace, comprising four of the five-largest BDs by AUM, according to Cerulli Associates.
“The increased scale of firms in the marketplace continues to benefit many advisors”
The continued M&A activity has resulted in increased economies of scale and efficiency for the parent firms. According to the research, the top-25 BD firms control 68% of total industry AUM and 58% of all industry advisor affiliations. Advisors at the top-five BD firms manage, on average, $159 million in AUM—81% higher than the average advisor in the industry.
“The increased scale of firms in the marketplace continues to benefit many advisors, as firms are able to make more significant investments in the technology and support services that are so critical to advisor productivity and a high-quality client experience,” Michael Rose, Cerulli associate director, said in a statement. “As the industry increasingly moves toward a fee-based model, B/Ds that can attract and retain established advisors through the supremacy of their platforms and service offerings while developing the next generation of talent will be best positioned for growth.”
While mergers and acquisitions have driven up the share of industry assets and advisor affiliations controlled by the largest BDs, the number of registered wealth-management-oriented BDs has declined from 1,284 in 2010 to 923 in 2020.
Reasons why
The report attributes the decline in the number of registered BDs to smaller firms dropping their registration and joining another BD or dropping their registration in favor of operating as independent or hybrid registered investment advisor (RIA) firms.
A restrictive regulatory environment for BD operations, the increasing cost of maintaining the necessary technology infrastructure to operate a BD, and a recognition by firms of the change in their business focus away from brokerage-based business and toward advisory services are several causes highlighted in the research.
Many large BDs are using their scale to offer a range of affiliation options to attract advisors with diverse preferences and requirements. Half of the top-10 BD firms by AUM operate in multiple advisor channels.
In these instances, advisors can choose how they would like to affiliate based upon their unique preferences and circumstances.
“To address the talent shortage, B/D firms will increasingly look to diversify the range of options they offer to advisors looking to work with/for them—it’s a differentiator for many seeking to recruit talent from other channels,” Rose concluded.