Fight for Independent Rep Talent Despite Current Financial Downturn

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In the research report “The Independent Reps & Independent Broker/Dealers Market: The 21st Century Model?”, Tiburon Strategic Advisors, a strategic consulting and research firm, finds that stronger producing reps, especially the reps at the bigger independent broker-dealers, are doing pretty well, despite the current financial downturn.

Independent broker-dealer reps are on the rise, while the number of financial advisors across all channels is growing. But are the numbers substantial? Wirehouses have “shed” a substantial number in their sales force, and there is still more industry consolidation predicted.

In an interview with, Charles Roame­, managing partner for Tiburon Strategic Advisors, explains some of the key findings and the predictions for the future. Your report notes that there are, broadly speaking, some 147,863 independent broker-dealer reps. That number is up 4,000 since 2001. Is this increase sizeable, and if so, what do you point to for the increase?

Roame: The growth in numbers of independent reps, 4,000 over the past 10 years, is not a significant growth rate. As baby boomers have been creeping closer to retirement (a time when they may need more financial advisors), one might have projected faster growth in the numbers of all types of financial advisors. Combined with the widely reported breakaway broker trend (wirehouse brokers going independent), I think most are surprised the number is not increasing faster. What exactly is going on at the wirehouses, given the report indicates that four wirehouses have dropped about 7,000 financial advisors over the past two years—some 13 percent of their sales force? Your research also indicates that 6,500 wirehouse brokers switched firms in 2009, up from 5,200 in 2008. So, what is leading this change?

Roame: Two inter-related trends are at work. First, the wirehouses have been intentionally shedding reps over recent years in an effort to focus on fewer more successful reps. Second, reps have been changing firms to capture up-front payments; wirehouses will pay successful reps 200 percent of trailing 12 months production (and sometimes even more) to jump to a new firm. While most reps don’t appear to be anxious to change jobs, your research did find that “LPL Financial received by far the most mentions as the firm reps would consider if they were to leave their current independent broker-dealer.” Is this merely a function of the large size of LPL Financial and its place as a leader in the space, or is it due to any other factors?

Roame: LPL is attractive to two types of reps. As the largest of the independent broker-dealers, it’s almost always on the short list when wirehouse reps consider going independent. And separately, as smaller independent broker-dealers have been challenged to keep up with technology, compliance and marketing, reps from these smaller broker-dealers have considered moving to larger firms such as LPL. The research concludes with predictions for independent broker-dealer business. You predict rapid industry growth, continued consolidation and new wirehouse entrants. What do you think that means for reps in terms of job security, payout rates and more?

Roame: Tiburon believes that the leading independent broker-dealers will evolve to look more like custodians to fee-based financial advisors. The smaller independent broker-dealers will be challenged to survive. The wirehouses will become platforms for advisors to have all types of working arrangements. In terms of careers, I think we will continue to see the wirehouses serving as the primary route into the industry, but I also think that as fee-based financial advisory firms mature, more will develop recruiting programs and career tracks. I think those starting in the wirehouse channel will often consider the jump to independence. I think those in the independent channels will have high career satisfaction and security.

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