Switching To Independent Model Keeps Up Pace

Migration to the independent financial advisor model—independent b/ds and RIAs—is likely to continue unabated in 2011, a Fidelity Investments survey about advisor and broker sentiment released today suggests.

Migration to the independent financial advisor model—independent b/ds and RIAs—is likely to continue unabated in 2011, a Fidelity Investments survey about advisor and broker sentiment released today suggests. Just over half of financial advisors and brokers say the independent model has gotten more attractive in today’s economic environment, and seventy percent say it will have the greatest earnings potential of all business models over the next 18 months, according to the survey.

Over the past three years, 17 percent of advisors in the industry have switched firms, about two-thirds of whom landed at an independent b/d (46 percent) or an RIA (17 percent). And 6 percent say they are likely to switch firms in the coming year.

“The pace has stayed pretty consistent each year, around 6 percent” says Sanjiv Mirchandani, president of National Financial, a Fidelity Investments company and the nation’s second largest clearing provider.

On average, those who switched firms recently report bringing 70 percent of their client assets to their new firm, up from 61 percent in 2008.

Fidelity surveyed 1,046 investment professions online in late 2010 in conjunction with Northstar Research Partners, an independent third-party research firm. The respondents came from a mix of independent, wirehouse, insurance, regional, bank and RIA firms and were weighted to reflect industry composition.

Among advisors switching firms, the top three reasons cited were dissatisfaction with the direction of the advisor’s firm (43 percent), more independence or freedom (34 percent) and better working environment (29 percent).

“The soft factors are becoming as important for advisors as the hard factors, like compensation,” said Mirchandani. “It is increasingly a series of elements I would call culture and community. It’s really important for advisors to feel confident about a firm’s direction, to feel that they are working with like-minded individuals. My personal view is that a lot of these folks are established and are not willing to compromise anymore. We’re past the crisis, and they have cemented their client relationships during a difficult time for their practices.”

The survey also found that advisor career satisfaction has improved to a rating of 7.4, up from 6.9 the last time it was measured in 2008. On the other hand, advisors fear that increased regulation resulting from Dodd-Frank will be bad for business due to increased paperwork (96 percent), increased time spent on compliance, (95 percent), increased cost (86 percent) and reduced number of products to use (31 percent).

As a result, many advisors (57 percent) plan to place a greater focus on their top clients, the survey found. About a third said they would spend more time on regulatory and compliance issues (29 percent), and some said they would partner with other advisors to create economies of scale (18 percent), ask less profitable clients to leave (17 percent) and work with clients on areas outside of traditional investments (14 percent).

“A brokerage firm that helps advisors successfully meet their compliance needs when all the rules get rolled out, a firm that can help them meet their responsibilities well, but in the least burdensome way possible, will be quite successful,” says Mirchandani.

“More consolidation in every channel is inevitable ultimately, because firms are going to need more capital, bigger compliance departments and more technology to keep track of all of this. And that requires scale.” Mirchandani says he especially expects the pace of consolidation to pick up among RIAs, as it is more fragmented than the b/d world, where consolidation has been happening for some time.

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