The story of the last decade in the U.S. broker-dealer market has been one of consolidation.
According to research from Cerulli Associates, the number of wealth management oriented BDs has declined from 1,284 in 2010 to 923 in 2020. The top 25 BDs control more than 68% of total assets under management across all of wealth management, and advisors at the top five BDs manage an average of $159 million — 81% higher than the average advisor across segments.
While some are simply dropping their BD registrations in favor of operating as registered investment advisors, many are simply getting swallowed up by larger firms like LPL, Advisor Group and Cetera. A restrictive regulatory environment, increasing technology costs and a shift in consumer preferences for advisory services instead of traditional brokerage-based services are all contributing to the ongoing trend, Cerulli’s report noted.
“The increased scale of firms in the marketplace continues to benefit many advisors, as firms are able to make more significant investments in the technology and support services that are so critical to advisor productivity and a high-quality client experience,” Michael Rose, an associate director at Cerulli, said in a statement. “As the industry increasingly moves toward a fee-based model, BDs that can attract and retain established advisors through the supremacy of their platforms and service offerings while developing the next generation of talent will be best positioned for growth.”
Mac Butler, the president and chief operating officer at wealthtech company Skience, has seen the impacts of the trend in real time. Mergers, acquisitions and firms going out of business decreased the number of entries in his contact list by 32% from 2006 to 2020, he said.
“This is a scale game for most businesses, and small BDs couldn’t make it on their own,” Butler said.
There is also the impact of an increasingly aging advisor population, many of whom founded a company and ran it 30 years before finding an exit. “Frankly, there’s not as many firms starting up, and many of the [new] firms are starting as RIAs rather than BDs,” Butler added.
While there are some advantages to consolidation and it could result in better outcomes for the investing public, there are always going to be some independent BDs that aspire to stay open for the long haul. For those firms, Butler has four pieces of advice for a firm to maintain its viability as a business.