A new report finds that large independent broker-dealer firms – those with $10 billion+ in assets – are helping to shape the IBD channel into a concentration of a small number of large firms.
Year-to-date, $136 billion in assets changed hands among independent broker-dealers (IBDs), as a result of five deals, according to a report by Fidelity Clearing & Custody Solutions. This compares to the $80 billion spread across 82 deals among RIAs during the same time period. In fact, the top 10 IBD firms in the marketplace now manage 65% of all broker-dealer assets and 48% of all broker-dealer advisors, according to the report.
According to the report, IBD M&A activity is heating up as a result of major changes taking place in the channel. Costs are rising as broker-dealers make investments in technology, advisor education and oversight to comply with regulations. Meanwhile, lower advisor productivity is straining bottom lines – average assets per IBD advisor are $32.9 million, while advisors at independent RIAs are twice as productive at $66.6 million, according to the report, citing The Cerulli Report, U.S. Advisor Metrics 2016.
According to the report’s authors, M&A is helping IBDs:
- Refine their growth strategies. The report found that two models are emerging in today’s IBD landscape – large firms with scale and focused firms with a distinct value proposition to serve a niche.
- Balance size and culture. Post-acquisition, large IBD acquirers are standardizing practices and procedures to improve efficiencies, while also maintaining advisor independence and choice. The report found that the large firms are focused on advisor engagement, management continuity and productivity improvements.
- Mitigate operating and regulatory risk. Reducing risk is top-of-mind for large IBD acquirers as they evaluate acquisition targets and the advisors affiliated with them. The report found that many large IBD acquirers are experienced buyers with well-defined strategies and thorough vetting processes, and they will decline deals that pose potential risks to their culture, sales record and firm value.
- Strengthen value propositions. Large IBD acquirers are creating additional value to appeal to firms looking to sell and to retain advisors post-acquisition through four key strategies; by leveraging technology as a strategic advantage, reinforcing advisor independence (a range of operating models supporting both fee- and commission-based business provides IBD advisors with the choices they need to stay in the channel), easing the transition, and investing to help advisors expand their books of business.
