Independent Model Seen as More Lucrative

Nearly 70% of advisers expect the independent model to offer more earnings potential than any other business model over the next 18 months, a Fidelity Investments survey found.

The independent model was also appealing to more than half (56%) of respondents because of today’s economic environment. Among the 18% who think the independent model is less attractive, the main reason is because of the expected costs of complying with impending regulations. These were some of the findings of Fidelity’s Broker and Advisor Sentiment Index survey.

The survey also revealed that brokers and advisers, overall, are more satisfied with their careers than in years past. On a scale of 0 to 10, with 0 being “extremely dissatisfied” and 10 being “extremely satisfied,” satisfaction increased to 7.42, up from 6.9 in late 2008 when the Index was last completed. The success of the broker’s firm and morale among brokers are the top drivers of satisfaction.

The independent segment continues to gain in popularity in terms of headcount and assets, the survey found. Seventeen percent of brokers have switched firms within the past three years. More than two-thirds (69%) of these recent switchers say they joined an existing firm, with the largest percentage choosing an independent broker/dealer (B/D).

Among those who switched, the top three reasons for moving to another firm were: “unhappy with changes in the firm’s direction,” “wanting more independence” and “wanting a better working environment.” The number one reason for switching in 2008 was the desire for a “better career opportunity.”

Brokers and advisers also appear to be increasingly effective in taking more assets with them when they switch firms. On average, those who recently switched firms report bringing 70% of their client assets to their new firm, up from 61% in 2008. The main reason for not transferring all their client assets was because it was the adviser’s preference.

Overall, 6% of brokers and advisers surveyed indicate they are likely to switch firms within the year. Among these “likely switchers,” the independent B/D and RIA segments are the most preferred channels, followed by regional and national brokerage.

Eighty-one percent of likely switchers said if they were to leave their current firms they would join an existing firm, compared to 19% who said they would start their own firm. As with the 2008 survey, the top reason brokers and advisers give for considering a switch is “better pay.” While the secondary reason in 2008 was “more independence,” this year’s second reason for considering a switch is “not happy with the changes in their firm’s direction.”

“While joining or starting an RIA continues to be an attractive choice when going independent, we also are seeing independent B/Ds successfully attract breakaways,” said Mirchandani. “These firms can be appealing to many brokers and advisers as they often support both fee and commission business, while also helping to alleviate some of the regulatory burden.”

Regulation Concerns 

Brokers and advisers reported being concerned about impending regulatory changes, with 48% expressing a negative reaction to the potential impact on their business. Specifically, the top ways in which brokers and advisers predict they will be impacted by more regulation are: increases in “paperwork,” “time spent on compliance,” and “costs of running their practice.”

The Fidelity survey also identified the most common actions brokers and advisers are taking as a result of the 2008-2009 market downturn. The most common action being taken is putting greater focus on top clients, followed by spending more time on compliance, and partnering with another adviser to create economies of scale.

In addition to these areas, brokers and advisers are focused on referral strategies as a way to generate new business. According to the survey, the top three strategies for generating new business opportunities are to get: referrals of friends or colleagues from clients, referrals from other professionals (e.g., attorneys) and referrals of children from clients. Interestingly, brokers and advisers report converting 63% of their referrals, on average, with the largest percentage (33%) of brokers saying they convert 76%-100%.

Advisers are Aging Too  

According to Cerrulli Associates, almost half of the adviser population is over the age of 50, with 49 being the average age. According to the Fidelity survey, the average expected retirement age among brokers and advisors is 68, with 19% saying they won’t retire until 71 or older. However, nearly one-third have not even started to think about retirement and another 10% have started thinking about it but are not sure what to do. Additionally, as many brokers and advisers tend to work with clients of a similar age, this leaves a void when looking at serving the 77 million members of Generation Y.

“While many of their clients are likely beginning to retire, industry data show that brokers and advisers are not too far behind,” said Mirchandani. “This aging of the broker and adviser population not only puts increased focus on M&A and succession planning, but, just as importantly, it raises questions about firms’ strategies for attracting and servicing the next generation of investors.”

The Fidelity Investment’s Broker and Advisor Sentiment Index is an analytical measurement of U.S. brokers’ and advisers’ satisfaction with their profession and their current firm. The survey of 1,046 U.S. investment professionals was conducted online in late 2010 by Northstar Research Partners, an independent third-party research firm. The respondents came from a mix of independent, wirehouse, insurance, regional, bank and RIA firms, weighted to accurately reflect the industry composition.