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Fee-based, Discount Brokerage and Online Channels to Grow

The fee-based advisor, discount brokerage and online advice channels will grow their market share over the next few years, says a research report by Tiburon Strategic Advisors.

“Everyone wants to be a fee-based advisor, and the DOL ruling will push [the industry] more that way,” said Chip Roame, managing partner at Tiburon, in a conference call about Tiburon’s research.

While all other advisor channels saw their ranks dwindle from 2008 to 2014, the number of dually registered and fee-based advisors increased during that period. 

And with more advisors came more assets under administration. Both dually registered advisors and fee-based advisors saw a compound average growth rate in AUA of about 14.5 percent from 2008 to 2014, beating out regional broker/dealers (10 percent), independent b/ds (8.7 percent), wirehouses (8.4 percent) and retail banks (-0.4 percent).

Insurance agencies, brokers and producer groups reported 17.3 percent compound growth, but as their AUA is small compared to other channels, this increase isn’t all that significant, said Roame. He thinks the uptrend in assets for dually registered and fee-based advisors will continue.

Roame also anticipates growth in the discount brokerage and online advisor channels. A series of Tiburon CEO Summit surveys indicate that executives see online financial planning, online investment advice and online banking as top areas of growth for the next five years. 

Tiburon also expects there will be a broader set of business model choices for advisors as well as a steady flow of breakaway advisors and stagnation in the total number of advisors.

But Roame warned of some issues in the numbers.

While many firms claim to steal big advisors from wirehouses, in many cases, advisors are actually fired for not meeting productivity quotas, says Roame, referring to these advisors as “broken-away," not “breakaway.” Wirehouse teams jumping ship may not necessarily indicate a preference toward independence.

In addition, while the total number of financial advisors is decreasing, that may be not be representative of what is actually going on. As wirehouses add new advisors to their ranks, they have to file individual Series 7 reports for each new employee. But as an RIA adds advisors, say from a wirehouse, there’s still only one RIA on file, which is counted as one advisor in most datasets. 

“I’m not totally convinced the number of frontline advisors is declining,” Roame said, later adding, “They may be really there, just hidden.”

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