State of the Firm: Attacking the Challenges of Running an Independent Firm Today January 29, Presented by Dennis Gallant, GDC Research

Transcription

1 State of the Firm: Attacking the Challenges of Running an Independent Firm Today January 29, 2013 Presented by Dennis Gallant, GDC Research

2 Our Discussion Marketplace Opportunities and Strengths Review the Top Challenges Facing Firms Regulation Profitability Recruitment and Retention Top Priorities and Actions Taken Advisor Production Technology Efforts Advisory M&A FSI Independent Broker-Dealer Survey 58 BD s participated in the survey providing directional insight Represents a cross-section of FSI members from small to large firms and from private to insurance company ownership

3 Demand for Advice Growing demand for advice 78 million baby boomers will begin to retire this decade Need to recover and rebuild portfolios Investors are seeking assistance Clients looking for change/consolidation Not sure where to turn to for help Complexity of consumer needs favors using an experienced advisor Supply and demand imbalance Shrinking pool of skilled advisors Ranking Advisor Benefits of Serving Retirement Income Clients Consolidate Assets Value Advisor/Services More Assets Higher Average Assets Easier to Retain More Referrals More Profitable 22% 39% 38% 56% 54% 73% 71% 0% 20% 40% 60% 80% Source: Trends in Advisor Delivery of Retirement Income

4 Largest Channel and Growing Independent BD s are the largest advisor channel by number of advisors 71% of IBD firms surveyed believed Independent BD s will continue to grow and gain market share from wirehouses and other channels How do Hybrid Advisors factor in? Number of Advisors 120, ,000 80,000 60,000 40,000 20, ,259 88,524 51,450 33,368 28,714 15,793 Independent B-D* Insurance B-D Wirehouse Regional RIA Bank B-D *Includes Hybrids Sources: Securities Industry and Financial Markets Association, Investment News, Financial Planning, Bank Insurance Marketing Research Group, National Regulatory Services, S&P Capital IQ MMD, Meridian IO, Cerulli Associates, Dow Jones Advisor Blog

5 Competitor Recognition Wirehouses continue to focus on top producers and are willing to lose their share of lower-end advisors But they recognize the impact of the IBD marketplace and recruiting activity Discussions about creating a independent or independent-like option are surfacing again Skeptical wirehouses will pull the trigger Lower margins on advisors Aging rep based lessons chances of switching channels Wirehouse compensation packages increase focus on retention Anticipate wirehouses will create an independent contractor offering in the next 3 years Disagree, 57% Source: FSI Industry Challenges Survey 4Q2012 Agree, 29% Neither, 14%

6 IBD Advisors Well Positioned IBD channel provides the greatest flexibility for advisors to meet client needs IBD advisors are More planning oriented Best practitioners in delivering retirement income Leads the market in serving more retirement income clients Serve a broader range of client affluence than peer channels More innovative the pool or bucket philosophy for income management developed out of the IBD marketplace Flexibility and diverse business models is a double edged sword Net Change in Retirement Income Clients Served by IBD Channel No net change, 26% Increased significantly, 12% Increased modestly, 62% Source: Positioning Retirement Income with Clients and Prospects 2013 Practical Perspectives & GDC Research

7 Factors Impacting IBDs 12b-1 Reform Rising Practice Management Support Increasing Competition for Recruits Low Interest Rate Environment Establishing Own RIA Regulatory Environment Increasingly Diverse Advisor Practices Models

8 Top IBD Challenges Regulato ry enviro nment A dviso r recruitment 20% 21% A chieving pro fitability targets The market/eco no mic enviro nment 13% 15% Delivering effective techno lo gy so lutio ns 11% Advisor retention Satisfying adviso rs 6% 5% Retaining qualified ho me o ffice talent B uilding/maintaining infrastructure Growing competition Other Attracting qualified home office talent Clearing firm suppo rt Source: FSI Industry Challenges Survey 4Q2012 2% 2% 2% 2% 1% 0% 0% 5% 10% 15% 20% 25%

9 Margins and Revenues To what degree are each of the following a challenge regarding Margins and Revenues Regulatory/compliance costs Investment in technology 90% 88% 7% 3% 5% 7% Level of advisor production 57% 33% 10% Low Interest rates on lending and cash services 55% 29% 16% Recruiting costs 53% 33% 14% E&O (arbitration, litigation and related costs) 47% 33% 21% Operational costs 45% 43% 12% Home office staff overhead 40% 45% 16% Cost of advisor support/service 40% 41% 19% Trading volume and revenues 29% 43% 28% Advisory revenues 26% 40% 34% Fee pressure from advisors/clients 24% 50% 26% Revenue sharing with partners 16% 45% 40% Source: FSI Industry Challenges Survey 4Q2012 0% 20% 40% 60% 80% 100% Significant Challenge Neither Not a Significant Challenge

10 Regulation Regulation is a top burden and challenge for IBD firms Disclosure Suitability Changing regulation Arbitration Varied advisors business models add to the oversight and the regulatory burden How has it impacted target recruits and retention of advisors frustrated with compliance What are the Regulatory costs Staffing, arbitration, monitoring and related technology What efforts can be employed to lower cost

11 Addressing Margins and Revenues What costs and revenues can you control or influence Regulation not likely to change in the near term As well as low interest rates Technology can help lower cost and improve production But requires advisor adoption Time to develop and implement For some firms the ROI is uncertain and a difficult expenditure given profitability struggles Advisor production Is one area that IBD firms can influence Tools and support are readily available It requires more resources and costs When will advisor retention payments make the list?

12 Perspectives on Recruitment Advisor recruitment has met our expectations over the past 12 to 24 months 29.3% 41.4% 29.3% Advisor recruitment will be significantly more difficult over the next 5 years 54.4% 31.6% 14.0% My firm has been successful at recruiting top producers 37.9% 25.9% 36.2% Our recruiting packages are competitive 36.2% 34.5% 29.3% Size and percentage of packages offered to recruits in the IBD model are similar to wirehouses and not sustainable 39.7% 36.2% 24.1% My firm has significantly expanded B-D capabilities/offerings to attract and retain advisors 53.4% 29.3% 17.2% Source: FSI Industry Challenges Survey 4Q2012 0% 20% 40% 60% 80% 100% Agree Neither Disagree

13 Recruitment Perspectives Most firms agree recruiting will become more difficult More difficult or more costly Facing the New Entrant Gap in 2013 Training of new entrants was virtually halted in 2008 and 2009, creating a gap of advisors with 4 to 5 years of experience Other independents and Insurers are the source of most recruits Limited success recruiting from wirehouses Longer production ramp up when shifting from wirehouse to independent Independent BDs Wirehouses and/or Regional BDs Insurance BDs 16% Sources of Recruits 37% 32% 30% 38% 39% 42% 16% 21% 9% 12% 9% 0% 20% 40% 60% 80% 100% High Medium Low Source: FSI Industry Challenges Survey 4Q2012

14 What about Retention Retention ranked low as a challenge 84% of IBD firms surveyed believed their advisors are very satisfied with their BD Other IBDs are the primary sources of recruits Need to increase focus on retention What s the cost to recruit versus retain 70% 60% 50% 40% 30% 20% 10% 0% Advisors are increasingly asking for retention payments, payout increases, etc. in exchange for agreeing not to leave the BD 62% 29% 9% Agree Neither Disagree Source: FSI Industry Challenges Survey 4Q2012

15 What are the Priorities Top priorities of IBD Firms over the past year or in the coming 12 months Increasing recruiting efforts 72% 22% Improved advisor production 60% 38% Enhancing advisor technology 57% 36% 5% Increasing focus on advisory services 45% 36% 16% Enhancing/replacing home office technology 43% 28% 28% 2% Developing the next generation of advisors 26% 47% 14% 14% Providing acquisition financing to advisors 16% 22% 28% 34% Acquiring another broker-dealer 9% 16% 21% 55% Reducing risk by narrowing product and service offerings 7% 21% 45% 28% Being acquired by another broker-dealer 9% 88% Changing clearing firms/going self-clearing 5% 10% 83% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100 % High Priority Medium Priority Low Priority Not a Priority Source: FSI Industry Challenges Survey 4Q2012

16 What Firms are Doing Enhancements or changes IBD firms have made in the past year or intend to make in the coming 12 months Add or enhance advisor technology/workstation (STP, Workflow and Imaging, Electronic Signature, etc.) Add or enhance advisor training and practice management coaching and support 80.7% 86.0% Add or enhance advisory platform offerings (e.g proprietary platform, private label platform, third party money manager, etc.) 70.2% Add or enhance RIA offerings 63.2% Add or enhance investment products 54.4% Add or enhance consolidated reporting for advisor and clients 52.6% Revamp advisor compensation 28.1% Add or expand investment research 14.0% 0% 20% 40% 60% 80% 100% Source: FSI Industry Challenges Survey 4Q2012

17 Technology Technology is a top priority and a significant expense Workflow management, automation, paperless environment What is the extent of manual or exception process at your firm What are the costs (resources, time, and money) Are firms maximizing the technology they have access? Too expensive Using proprietary solutions over clearing or third-party Don t have access Are advisors using technology solutions provided? Advisors are looking for more integration with technology they already have, not more solutions

18 Improving Advisor Production Improving production is a top priority Advisors are generally satisfied with their broker-dealer, but the marketplace has become more complex, they are working harder and doing more for their clients but improving production is a top priority Improving production requires more hands on involvement Practice management, coaching, etc. are key elements in driving production, but efforts are costly, have limited scale, and are often understaffed Advisors are seeking more face time with the home office and field support Advisors are seeking assistance in what technologies to use and how to use them An assessment or validation of their process Frustrated by lack of home office staffing, field support, and expertise What services and tools drive production? What segments or key attributes should IBD focus on

19 Developing New Clients/Prospects IBDs are inline with challenges facing advisors Gateway for changing behavior, encouraging adopting of tools/technology, and for seeking support services Most Significant Challenges Facing Advisors Most Significant Challenges Advisors Face in Growing Their Practice for Retirement Income Developing new clients/prospects 23% Attracting new clients 75% Managing practice and business efficiency 21% Differentiating my practice Overcoming inertia or the status quo 34% 52% Continuity/succession planning and financing 17% Finding the time and resources given other priorities 33% Client service and support 10% Developing needed processes or systems 28% Low interest rate environment Using available tools and technology Health insurance for advisors, their families and their staff 4% 6% 7% 0% 5% 10% 15% 20% 25% Understanding products and solutions Developing required knowledge and skills Identifying the appropriate scope of services to provide Finding new technology or infrastructure Obtaining special retirement income designations or training 27% 21% 21% 14% 13% Source: FSI Industry Challenges Survey 4Q2012 0% 20% 40% 60% 80% Source: Positioning Retirement Income with Clients and Prospects 2013 Practical Perspectives & GDC Research

20 Advisory Services Expanding resources and focus on our Corporate RIA 78% 16% 3% 3% Currently accommodating advisors with their own RIA 50% 12% 34% 3% Increasing efforts to accommodate advisors with their own RIA 38% 16% 41% 5% Very satisfied with our BD's advisory offering 53% 33% 9% 5% Plan to work more closely with Third Party Asset Manager Program providers 44% 37% 14% 5% 0% 20% 40% 60% 80% 100% Agree Neither Disagree N/A Source: FSI Industry Challenges Survey 4Q2012

21 Expanding Advisory Support Ranks 4 th as a priority and on actions taken Expanding Corp. RIA Resources Getting advisors to transition to fees is still a challenge Expanding the platforms Benefits and trade-offs of proprietary, private label, and TAMP efforts The industry has focused on creating an advisory offering Need to focus efforts on helping advisor best use it Hybrids Opportunity or Accommodation 120, ,000 80,000 60,000 40,000 20,000 - Hybrids are Increasing Market Share 102,323 7% 7,911 95,093 94,195 12% 13,496 15,508 14% 79,802 19% 18, Independent B-D Hybrids Hybrids as a percentage of IBDs 20% 18% 16% 14% 12% 10% Sources: Securities Industry and Financial Markets Association, Investment News, Financial Planning, Bank Insurance Marketing Research Group, National Regulatory Services, S&P Capital IQ MMD, Meridian IO, Cerulli Associates, Dow Jones Advisor Blog 8% 6% 4% 2% 0%

22 What about Consolidation Expect Continued Consolidation of Independent Broker-Dealers Neither, 16% Agree, 84% More consolidation expected, but is not a priority among survey participants Acquiring a BD in not a priority for more than half of the firms surveyed and for 88% being acquired Where will consolidation come from? Size of the firm Ownership structure Where will the financing and capital come from? Source: FSI Industry Challenges Survey 4Q2012

23 Outlook/Summary Increasing demand for advice and advisors Independent BD advisors are well positioned in the marketplace Attacking the Challenges Regulation Recruitment Profitability and Cost Technology Meeting Advisor Needs

24 Questions? Contact Information: Dennis Gallant, President GDC Research (781) office (508) mobile

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