Breakaways Brought $142B to Independent Channel in 2015

Brokers, financial advisors and advisor teams fleeing to the independent distribution channel brought $142 billion in assets in 2015, an increase of 11 percent from 2014, recent research found.

That contrasts with 2010, when advisors breaking away from a captive or employee environment took an estimated $77 billion in assets. The movement has become “effectively a one-way flow,” into the independent channel, Tiburon Strategic Advisors concluded.

The exodus of assets into independent channels, is “a big stinkin’ deal,” said Chip Roame, managing partner of Tiburon Strategic Advisors in Tiburon, Calif., in a conference call this week with clients.

“That is a huge amount of money if you are one of the channel players in the independent advisor world,” he said.

Brokers typically leave the captive channel for the opportunity to control their own destinies if not necessarily for a higher payday, and the breakaway movement “definitely benefits the independent advisor market,” Roame said.

In 2015, there were an estimated 413 financial advisor teams moving into the independent channel from the captive and employee channels, according to Tiburon’s research.

On average, a team moving in 2015 brought with it $344 million, Roame said.

In 2010, with the country recovering from the financial crisis and deflated asset values, as many as 544 advisor teams moved from the captive to the independent channels.

On average, those teams each brought with them about $141 million, Roame said.

In market troughs - such as in 2008 and 2009 - it's a bad time for advisors to move because when accounts are low clients may not follow their advisor into a new channel.

But in 2010, as markets recovered, pent-up demand among breakaway brokers were reflected in the high number, Roame said.

About 126,000 independent advisors work in the U.S. as independent advisor representatives (IAR) or fee-based registered investment advisors (RIA).

In a separate survey using different measures, 64 teams and individuals in 2016 broke away from RIAs, wirehouses and independent broker/dealers to join other RIAs, according to DeVoe & Co.'s RIA DealBook.

That represented an increase of 14 percent from 2015, DeVoe & Co. said.

Assets Per Advisory to Remain Steady

Asset volumes for each financial advisory team leaving for the independent channel has remained relatively level for the past three years, Roame said.

The estimated number of financial advisor teams and the asset volumes they bring to the independent channel is expected to remain level.

“We think there will be a steady breakaway broker movement,” he said. “By steady I don’t mean hugely up and I don’t mean hugely down.”

Still, there’s no question the independent channel will be the biggest beneficiary as many independent advisories charge a fee based on assets under management.

Only brokers who left voluntarily from a captive or employee environment to an independent channel were considered breakaway brokers for the purposes of measuring asset flows into the independent advisor channel, Roame said.

Breakaway advisors who were fired from their previous employer or moved from one firm to another within the same channel were not counted in the breakaway broker data, Tiburon said.

IARs, traditionally commission-based brokers, make up the bulk of the 126,000-strong independent advisor market with a share at about 63 percent.

But the IAR share is shrinking as brokers and advisors shift to become fee-based and dually-registered advisors, Tiburon said.

Largest Transactions in 2015

In 2015, the largest teams to leave for the independent channel took with them billions of dollars in assets.

One team of former Merrill Lynch advisors left the wirehouse and took with them $3.3 billion in assets to Dynasty Financial Partners in 2015, Tiburon said.

Another team that same year took $3.2 billion in assets from Deutsche Bank to Dynasty Financial Partners. A third team scampered off with $3 billion in assets from Barclays for Dynasty.

A pair of advisors from Northwestern Mutual took their $3 billion book of business to LPL Financial, also in 2015, according to Tiburon’s research.

The fastest-growing distribution channels for retail advice over the next five years will come from online channels in financial planning, banking and investment advice, said industry executives surveyed by Tiburon.

The RIA channel is expected to be the next highest-growth channel, survey respondents said.

Retail advice channels with the lowest growth projections in the next five years are wirehouses, life insurance agents, regional brokers dealers, property-casualty agents and third-party administrators, the Tiburon survey of executives found.

“The IBDs — independent broker-dealers — end up in the middle, even below average, and the captive models are all down at the bottom, that’s what Tiburon clients are predicting over the next five years,” Roame said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]

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