Brokers’ Plans to Join RIAs Hit Covid-19 Roadblock–survey
The coronavirus pandemic has delayed brokers’ plans to leave their firms to set up independent financial planning and registered investment advisory firms, but not killed the plans, according to a new survey.
Of 120 experienced advisors working at broker-dealers, 25% said they plan to someday operate their own firm, according to a survey conducted in April and May by TD Ameritrade Institutional, the RIA custody division of the discount brokerage firm. That is down just 4% from those who answered the breakaway question affirmatively in a survey taken the previous fall.
But only one-third of the 30 who expect to break away felt they could make the move within 12 months—well below the 55% who were on the verge of moving in the survey some six months earlier.
The survey of 450 professionals at national, regional and independent broker-dealers and of independent RIAs that have already made the transition also found a greater number of brokers expecting to take a more conservative path to independence than in past surveys.
Rather than setting up new shops, more than a third of the brokers surveyed (36%) would consider joining an existing RIA or RIA aggregator firm as an employee, or contracting with third-party “platform firms” offering technology, product and operational support. That is up from just 16% open to the more conservative route when questioned in the fall.
Economic uncertainty and market volatility that has concerned brokers’ customers during the coronavirus pandemic are the principal reasons for the delay, said Scott Collins, managing director of sales consulting at TD Ameritrade Institutional.
“Overall advisor sentiment is that they are more confident about making the move,” he said, noting that the survey was conducted in April and May when pandemic jitters were strong. “They’re still exploring it, but they did have to pump the brakes a little bit during this time and focus on their clients first.”
A paradoxical benefit of the work-from-home constraints imposed by Covid-19 is that brokers considering independence as RIAs or as independent broker-dealer contractors have gained confidence in their abilities to operate more autonomously, according to technology vendors and custody firms that support independent practices.
“We believe that this pandemic will be another catalytic event for those thinking about making a move,” said David Canter, head of Fidelity Institutional’s RIA segment. “Several advisors who have made a break [found] it was easier to reach their clients because of the remote environment and that factor, in combination with the digital tools available to them, made the process more efficient.”
Dynasty Financial Partners, which provides product, trading and financing services to RIA firms, has helped four teams transition to the RIA channel over the last 30 days, and has a strong pipeline through yearend, CEO Shirl Penney said. Dynasty last month helped a UBS Wealth Management veteran in Pittsburgh whose team produced about $3.5 million.
According to the TD Ameritrade survey, money continues to be the strongest factor behind brokers’ urge to become independent. Just under three-fourths of brokers hoping to become RIAs (74%) expect to earn more money within a year of going independent, and 46% believe their net income will grow 81% to 100%. More modestly, 12% said they would leave their brokerage firms for as little as a 15% increase in compensation.
Advisors who drop their brokerage licenses to become registered investment advisers frequently cite their fiduciary obligations as a motivation for more conflict-free service to customers, but TD Ameritrade did not include that in a multiple-choice response to its question about motivations.
Another top motivator for going independent among potential breakaways was the quest for control of their businesses and escape from management strictures. Thirty-four percent of respondents still at brokerage firms expressed dissatisfaction with their firms’ leadership and strategic direction, according to the TD Ameritrade Institutional survey.
Almost 100% of respondents at brokerage firms (99%) expressed confidence that their customers were loyal to them and not their employers. The percentage of those believing they can grow their practices without the help of their employers’ brand name was a little lower, at 80%.
The average age of the prospective breakaway brokers who responded was 50. They averaged 20 years of industry experience and managed an average of $100 million in client assets.
Among 330 former brokers already at independent RIAs, 80% said the move was easier than expected and 78% asserted that they had successfully transitioned all their clients to their new firms.
The survey was conducted for TD Ameritrade by analytics firm Escalent, and has a margin of error of plus or minus 5.8%, the companies said.