Consolidation in the U.S. Broker/Dealer Channel Continues Apace
December 9, 2021 — Boston
The 25-largest U.S. advisor-intermediated broker/dealers control 68% of total retail financial advisor AUM, but competition for advisor talent remains high as affiliation options abound
The ongoing march toward industry consolidation in the U.S. broker/dealer (B/D) channel held strong in 2020 with more large mergers and acquisitions. The top-25 advisor-intermediated B/D firms continue to account for a disproportionate share of total retail financial advisor assets under management (AUM) while the wirehouses continue to dominate the marketplace, comprising four of the five-largest B/Ds by AUM, according to Cerulli’s latest report, U.S. Broker/Dealer Marketplace 2021.
The continued M&A activity has resulted in increased economies of scale and efficiency for the parent firms. According to the research, the top-25 B/D firms control 68% of total industry AUM and 58% of all industry advisor affiliations. Advisors at the top-five B/D firms manage, on average, $159 million in AUM—81% higher than the average advisor in the industry. “The increased scale of firms in the marketplace continues to benefit many advisors, as firms are able to make more significant investments in the technology and support services that are so critical to advisor productivity and a high-quality client experience,” says Michael Rose, associate director. “As the industry increasingly moves toward a fee-based model, B/Ds that can attract and retain established advisors through the supremacy of their platforms and service offerings while developing the next generation of talent will be best positioned for growth."
While mergers and acquisitions have driven up the share of industry assets and advisor affiliations controlled by the largest B/Ds, the number of registered wealth-management-oriented B/Ds has declined from 1,284 in 2010 to 923 in 2020. The report attributes the decline in the number of registered B/Ds to smaller firms dropping their registration and joining another B/D or dropping their B/D registration in favor of operating as independent or hybrid registered investment advisor (RIA) firms. A restrictive regulatory environment for B/D operations, the increasing cost of maintaining the necessary technology infrastructure to operate a B/D, and a recognition by firms of the change in their business focus away from brokerage-based business and toward advisory services are several causes highlighted in the research.
Many large B/Ds are using their scale to offer a range of affiliation options to attract advisors with diverse preferences and requirements. Half of the top-10 B/D firms by AUM operate in multiple advisor channels. In these instances, advisors can choose how they would like to affiliate based upon their unique preferences and circumstances. “To address the talent shortage, B/D firms will increasingly look to diversify the range of options they offer to advisors looking to work with/for them—it’s a differentiator for many seeking to recruit talent from other channels,” concludes Rose.
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