Independent B-Ds Look to Recruiting

Independent broker/dealers (IBDs) say recruiting is important—but the competition for advisers is high.

IBD firms ranked recruiting as the most important factor in the future growth of their firm, according to research by Cerulli Associates. However, Cerulli said the challenge is exacerbated by the stagnating number of advisers in the industry, as the firm has noted in previous research (see “B/Ds Dealing With Dwindling Numbers of Advisers and “Recruiting Young Advisers Requires Less Traditional Approach“)

“Recruiting advisers has turned into a battle for marketshare,” said Bing Waldert, director of Cerulli Associates and author of the report, in a press release.

Cerulli noted two particular trends affecting the ability of IBD firms to recruit. The first is in relation to the adviser who starts in the insurance channel: These advisers find that as their practice matures, they need a more sophisticated set of services and products to offer their clients, Cerulli said. The firm sees advisers shifting to more independent channels and firms in order to address a higher net worth client.

Cerulli data show that in 2008 independent broker/dealers recruited about 36% from other IBDs, 27% from the insurance channel, and 12% from wirehouses.

The second trend relates to the breakaway adviser. “We have seen an industrywide movement away from structured channels to more independent ones,” said Waldert. “While we believe that this overall trend is somewhat overstated—there is an historic mismatch between advisers’ stated interest and actual movement to independent channels—advisers are going independent in greater numbers than ever before.” Cerulli research has previously noted that many wirehouse advisers like the idea of going independent, but few actually do. However, Cerulli and others have noted that the recent crisis might cause an acceleration of advisers going independent (see “Once a Wirehouse Adviser, Always a Wirehouse Adviser?’ andCompetition for Advisers Heats Up).

Cerulli also said that breakaway brokers now have more resources at their disposal. Other advisers have crossed over to being independent successfully, building the blueprint. Meanwhile, more technology is available to help advisers going independent. A recent survey by Schwab Institutional, which provides support for advisers, found that most advisers were happy with their decision to become registered investment advisers (see “RIAs Don’t Regret Going Independent“).

The decision to go independent is usually about a philosophical decision to become a business owner rather than someone’s employee, according to Cerulli, and it is also ultimately event-driven.

“There is typically a seminal event that causes an adviser to look for a new broker/dealer,” said Waldert. “While the long-term effects of the recent market turmoil are unclear, perhaps the current economic environment represents one such event.”



The research is from Cerulli Report, State of the Independent Broker/Dealers: Channel Sizing and Industry Implications.