TD Ameritrade: Brokers’ Yen for Independence Stronger Than Ever
The prospect of making even fractionally more money and of having more control over the way they work with clients are the strongest motivations brokers have for making the difficult decision to leave broker-dealers to become independent investment advisers, according to a new survey.
Of the almost 25% still working at broker-dealers, 46% said they feel even more strongly about breaking away than they did at the end of 2018—when markets were collapsing and clients needed more hand-holding—and 44% expect to move within 12 months.
The average age of the prospective breakaways surveyed was 50, their average customer assets were $95 million, and they had an average of 18 years’ experience—including a decade at their current firms.
Compensation remains a major driver, with 66% expecting they can make more money within a year of going independent.
More than one of three respondents said they would move immediately if they knew they could make as little as 5% more than currently, with the number swelling to 86% if they gain confidence their compensation will grow by 20% within one year of going independent, according to the online survey.
The other top motivator for the potential breakaways is to have more control of their businesses, with 43% saying they are unhappy with their current firm’s corporate culture.
But even though 99% of respondents believe their clients are loyal to them rather than their firms, more than half have delayed switching because of fears about going it alone. Fifty-one percent, for example, fear that managing legal and compliance issues will be too difficult.
The survey also included 337 former brokers already at independent RIAs, and TD Ameritrade used their responses to assuage anxieties about breaking away. (The breakaways were on average 50 years old, had 15 years of industry experience and managed $213.5 million in client assets.)
While only 8% of those who made the jump said the transition was easier than expected, more than 90% reported no issues accessing a broad range of investment products. More surprisingly, almost 70% indicated that losing the cachet of their former firms’ names helped their bottom lines.
“Major wirehouses have had brand and perception issues,” said Scott Collins, managing director of institutional consulting at TD Ameritrade Institutional, who said that has added some fuel to the breakaway movement.
The broader selling point used by custodians is that access to technology, practice management resources and information is broad and relatively inexpensive.
“If you look at today versus ten years ago or fifteen years ago, it’s much easier to be independent as an RIA than it’s ever been before,” Collins said.
To be sure, managing an advisory businesses as sole proprietor remains a scary prospect. Twenty-three percent of respondents still at brokers said managing their own business would be “too difficult” and 33% said they would move only if they could join an existing RIA.
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.