We all know it, Cerulli solidifies it.
The latest report from the Boston-based research and consulting firm names the major threats to the broker-dealer (BD) business model, of which there are many, regulation being just one. Taken together, they spell trouble.
“The BD model faces competitive threats in addition to those imposed by regulation,” Bing Waldert, managing director of U.S. research at Cerulli, said in a statement. “Chief among these is the growth of the independent RIA model. Advisors are increasingly choosing to strike out on their own, doing business under their own RIA.”
And of course, there’s the shift away from commission-based products and services on which the model rests (although a move to fees has been happening for some time).
“One of the most important trends in the wealth management industry is the shift away from commissions to fee-based pricing,” Waldert noted. “Even if it is ultimately diluted, the DOL Conflict of Interest Rule has reinforced the shift away from commissions to fees.”
“When Cerulli examines marketshare shifts, the focus has always been the shift of advisors away from employee-based BDs to more independent models,” he added. “However, some portion of the registered investment advisor (RIA) channel’s growth can be attributed to investors choosing to do business with an independent advisor with fiduciary positioning.”
To enhance their credibility with advisors, BDs must reconsider their value proposition as an advisor-service organization, Waldert concludes.
“It’s important for BDs to help advisors further their career goals, because if advisor recruiting slows, organic growth becomes more important.”
The findings are contained in the October 2017 issue of The Cerulli Edge – U.S. Edition, which explores various metrics that firms use to gauge their success, including data-driven technology, formalized goals, and re-evaluating the role of BDs.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
