|Copyright:||Copyright Business Wire 2011|
|Source:||Business Wire, Inc.|
Brokers and Advisors Increasingly Effective at Taking Assets as They Switch Firms
Among those brokers and advisors surveyed, more than half (56%) indicate that the “independent” model has become more attractive in today’s economic environment, while nearly 70 percent expect the independent model to offer more earnings potential than any other business model over the next 18 months. Among the only 18 percent who believe the independent model is less attractive, the No. 1 reason is because of the expected costs of complying with impending regulations.
The Fidelity survey also reveals that brokers and advisors, overall, are more satisfied with their careers than in years past. Satisfaction increased to 7.42, up from 6.9 in late 2008 when the Index was last completed. The success of the broker’s firm and morale among brokers are the top drivers of satisfaction.
“From new regulations to changing investor attitudes and behaviors, it’s clear that the market downturn of 2008-2009 has had significant and far-reaching implications on brokers and advisors,” said
“Yet, despite these growing pressures, we were encouraged that brokers’ satisfaction jumped, something that we believe is a reflection of their resiliency and flexibility to meet new challenges as well as their continued focus on meeting the increasingly demanding needs of their clients,” continued Mirchandani.
“While the absolute number of brokers going independent has normalized to pre-2008 levels, we are seeing a greater number of large teams making the transition, driven, in many cases, by the growing number of options available,” said Scott Dell’Orfano, executive vice president of Fidelity Institutional Wealth Services®, the nation’s second largest RIA custodian3. “That said, there is no one-size-fits-all approach to going independent, or any channel for that matter. Whether a team joins an independent firm, bank or any other type of firm, it all comes down to the distinct needs of its practice and end clients.”
Broker Movement Continues; More Assets on the Move
The independent segment continues to gain in popularity in terms of headcount and assets. According to the Fidelity survey, 17 percent of brokers have switched firms within the past three years. More than two-thirds (69%) of these recent switchers say they joined an existing firm, with the largest percentage choosing an independent broker-dealer.
Among recent switchers, the top three reasons for moving to another firm are: “unhappy with changes in the firm’s direction,” “wanting more independence” and “wanting a better working environment.” The No. 1 reason for switching in 2008 was the desire for a “better career opportunity.”
Brokers and advisors also appear to be increasingly effective in taking more assets with them when they switch firms. On average, those who recently switched firms report bringing 70 percent of their client assets to their new firm, up from 61 percent in 2008. The No. 1 reason for not transferring all their client assets was because it was the advisor’s preference.
Overall, six percent of brokers and advisors surveyed indicate they are likely to switch firms within the year. Among these “likely switchers,” the independent broker-dealer and RIA segments are the most preferred channels, followed by regional and national brokerage.
Eighty-one percent of likely switchers state if they were to leave their current firms they would join an existing firm, compared to 19 percent who say they would start their own firm. As with the 2008 survey, the top reason brokers and advisors give for considering a switch is “better pay.” While the No. 2 reason in 2008 was “more independence,” this year’s No. 2 reason for considering a switch is “not happy with the changes in their firm’s direction.”
“While joining or starting an RIA continues to be an attractive choice when going independent, we also are seeing independent broker-dealers successfully attract breakaways,” said Mirchandani. “These firms can be appealing to many brokers and advisors as they often support both fee and commission business, while also helping to alleviate some of the regulatory burden.”
Concern About Impact of Regulation; More Focus on Top Clients
Brokers and advisors report being concerned about impending regulatory changes, with 48 percent expressing a negative reaction to the potential impact on their business. Specifically, the top ways in which brokers and advisors predict they will be impacted by more regulation are: increases in “paperwork,” “time spent on compliance” and “costs of running their practice.”
The Fidelity survey also identifies the top actions brokers and advisors are taking as a result of the 2008-09 market downturn. The No. 1 action being taken is putting greater focus on top clients, followed by spending more time on compliance and partnering with another advisor to create economies of scale.
In addition to these areas, brokers and advisors are focused on referral strategies as a way to generate new business. According to the survey, the top three strategies for generating new business opportunities are to get: referrals of friends or colleagues from clients, referrals from other professionals (e.g., attorneys) and referrals of children from clients. Interestingly, brokers and advisors report converting 63 percent of their referrals, on average, with the largest percentage (33%) of brokers saying they convert 76-100 percent.
“Clearly, referrals are an important growth strategy for brokers and advisors,” said Dell’Orfano. “But with concerns about regulation potentially distracting them from their core focus of serving clients and business development, firms need to make sure they have the right strategy, processes and tools in place to help their brokers and advisors effectively and efficiently manage their investor relationships.”
The Graying of Advisors
According to Cerrulli, almost half of the advisor population is over the age of 50, with 49 being the average age4 . According to the Fidelity survey, the average expected retirement age among brokers and advisors is 68, with 19 percent saying they won’t retire until 71 or older. However, nearly one-third have not even started to think about retirement and another 10 percent have started thinking about it but are not sure what to do. Additionally, as many brokers and advisors tend to work with clients of a similar age, this leaves a void when looking at serving the 77 million Gen Y’ers.
“While many of their clients are likely beginning to retire, industry data show that brokers and advisors are not too far behind,” said Mirchandani. “This aging of the broker and advisor population not only puts increased focus on M&A and succession planning, but, just as importantly, it raises questions about firms’ strategies for attracting and servicing the next generation of investors.”
About the Broker and Advisor Sentiment Index
The Fidelity Investment’s® Broker and Advisor Sentiment IndexSM is an analytical measurement of U.S. brokers’ and advisors’ satisfaction with their profession and their current firm. The survey of 1,046 U.S. investment professionals was conducted online in late 2010 by
About Fidelity Investments
Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of
Fidelity, Fidelity Investments, Fidelity Investments and the Pyramid Design logo, Fidelity Institutional Wealth Services and
Clearing, custody or other brokerage services may be provided by
1 The Fidelity Investment’s® Broker and Advisor Sentiment IndexSM is an in-depth survey analyzing the attitudes and behaviors of 1,046 financial professionals from independent broker-dealers, national brokerage firms, RIAs, insurance companies, banks and regional broker-dealers.
2 Measured on a scale of 0 – 10, with 0 being “extremely dissatisfied” and 10 being “extremely satisfied.”
4 “Hire, Train, or Else,” The Cerulli Edge Advisor Edition, Third Quarter 2010.
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Source: Fidelity Investments