Regs, Comp and Trust Issues Push Reps to Consider Independence

Brokers and registered representatives point to more regulation, changing compensation and the erosion of public trust as reasons to go independent, according to a new survey.

In addition, nearly half – 46 percent – of brokers and registered representatives expect the brokerage industry to deteriorate, the TD Ameritrade Institutional survey found.

The findings were published in TD Ameritrade Institutional’ s 2017 Break Away to Independence Survey released this week.

“There is an undercurrent of discontent as disenchanted brokers navigate the second half of their careers,” said Scott Collins, director of brokerage independence at TD Ameritrade, in a news release.

New regulations like the Labor Department's fiduciary rule, and lower commissions brought on by passive investing have made life more difficult for brokers.

When citing reasons for leaving a captive channel, 34 percent of respondents pointed to independence and flexibility, 26 percent said it was to earn more money, 16 percent said for more control over day-to-day decisions. Twelve percent said it was for equity ownership.

The survey collected data from 134 brokers who said they intend to join the independent channel within the next three years. On average, survey participants oversaw $274 million in assets and had been with their firm for 12 years and in the industry for 18 years.

TD Ameritrade Institutional acts as a top custodian for fee-based independent advisors.

Once Independent …

Once independent, many but not all, financial advisors would prefer to start their own business, the survey found.

Four out of 10 respondents – 40 percent – said they wanted to start their own business, 25 percent wanted to buy or merge with another business, and 17 percent wanted to join a firm as an employee. Sixteen percent wanted to affiliate with an aggregator, while 2 percent would choose another path.

A majority – 58 percent – said they would transition to independence as part of a team and 42 percent said they would transition to independence by themselves.

That doesn’t mean becoming independent is easy.

“I went independent in 2002, it was a different time, it was a hard time, I made life choices,” said Allan Katz, a financial advisor in Staten Island, N.Y.

Indeed, 49 percent of respondents said managing legal and compliance issues would hold them back from lighting out for independence, and 25 percent feared the transition to independence was too hard and might involve the loss of clients, according to the TD Ameritrade research.

Other respondents were worried they wouldn’t be able to grow their practice to make it worth their while, the survey found.

Few Succeed in Changing Channels

Assets gathered by RIAs are growing quickly, and profits generated per RIA advisor are also rising, so the lure of going independent isn’t new.

But it would be a mistake to overstate the number of truly successful brokers voluntarily leaving their firms for the independent channel.

In 2016, only 513 financial advisors and financial advisor teams broke away on their own terms from the captive to the independent channel, said Chip Roame, managing partner of Tiburon Strategic Advisors, which follows the advisory market.

That represents a fraction of the 22,707 advisor teams and individual advisors who changed firms last year.

The vast majority of those 22,707 advisors left because they were fired or they didn’t make their sales numbers, and simply moved shop to another firm in the same channel, Roame said.

A UBS wirehouse broker moved to Morgan Stanley, for example, or a registered rep moved from a regional broker-dealer to another broker-dealer, or an RIA moved to another RIA and stayed in the independent channel, Roame said.

By 2022, the number of successful financial advisor teams and individual advisors moving from the captive to the independent channel will more than double to 1,113 from 513 last year, Roame estimated.

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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