IBD Elite 2020: Which IBDs are leading shift to fee-based revenue?

Trader Talk

To see how much the world has changed for IBDs, look no further than the expanding gap between the amount of advisory fees and commissions.

Fees outpaced commissions for the first time in 2017 by a mere $112 million among the 50 largest wealth managers participating in Financial Planning’s IBD Elite survey. That chasm has widened to $3.6 billion in annual revenue, according to this year’s survey, with midsize firms like PlanMember Securities leading the dramatic shift alongside giants like Ameriprise and LPL Financial.

The below list shows the 10 IBDs with the highest percentage of their revenue derived from advisory fees. Corporate RIAs generate a larger share of IBD business every year. In 2007, $3 billion in fees comprised 23% of the sector’s $13.2 billion in revenue; last year, $15 billion in fees made up 48% of its $31.2 billion.

In addition, the discrepancy between advisory fees and commissions keeps growing. After soaring to $1.9 billion in 2018, it jumped by 94% last year. It’s no wonder that firms like Commonwealth Financial Network, LPL and Kestra Financial have bulked up their RIA services.

Furthermore, the SEC’s Regulation Best Interest and the wider fiduciary debate on advisory rules are contributing to the pivot. Conflicts of interest such as cash sweeps, 12b-1 fees and revenue sharing represent significant parts of the traditional IBD business model. Experts say Reg BI hasn’t altered IBDs’ strategies as much as the vacated Department of Labor rule of 2016 would have required.

As advisors add more fee-based clients and migrate their brokerage accounts into advisory services, the marketplace — rather than regulation — may well forge different practices. This year’s presidential election might also upend Reg BI and the new rule proposed by the Labor Department last month.

In this complex picture spanning the retirement accounts of tens of millions of Americans, 10 IBDs stand out for spearheading the sector’s embrace of fee-based planning. To see which IBDs have the largest fee-based mix of business, scroll down our slideshow. For last year’s ranking, click here.

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