The 10 Biggest BDs Are Getting Bigger: Cerulli

These broker-dealers account for 58% of retail advisory assets, the research group finds.

The 10 biggest broker-dealer firms by assets under management have 123,000 financial advisors and account for 58% of the total retail financial advisor industry, according to new research from Cerulli Associates

The largest firms’ hulking market share, driven by a steady stream of mergers and acquisitions over the past decade, underscores the need for scale to remain competitive in the marketplace, Cerulli said.

Since 2012, one-fifth of the top-25 broker-dealers in terms of their asset base have either been acquired or have merged as firms have felt pressure to increase scale to remain competitive and maximize profit margins, according to the research. 

Very large broker-dealers have leveraged their scale and capital positions to outgrow their smaller counterparts, with a five-year compound annual growth rate of assets under management of 8.4%, compared with 6.6% and 6.9% annualized growth rates for large and medium-sized firms.

Financial advisors and asset managers seeking shelf space are attracted to the size and scale that these large firms offer. 

“The advantages of scale for BDs include the ability to spread fixed investments in areas such as infrastructure, technology and regulatory compliance across a larger advisorforce, which increases the return on those investments,” Michael Rose, director of wealth management at Cerulli, said in a statement. 

Scale also provides broker-dealers with leverage to maximize revenue from asset managers for various forms of distribution, including revenue sharing, strategic marketing costs and data packages. 

“Scale provides BDs with stronger negotiating power over asset managers that rely on BDs and their financial advisors to distribute their products, to include their offerings in BD home-office models or to select them within portfolios that advisors directly manage,” Rose said.

That said, broker-dealer firms cannot expect scale to solve the many challenges they face, Rose said, pointing out that an increasing number of advisors who are dissatisfied with working for a big financial institution are choosing alternative affiliations, particularly hybrid and independent RIA affiliation.

Cerulli’s research showed that 71% of advisors would prefer to be affiliated with an independent firm if they were to change affiliation, reflecting a broader trend of advisor interest in independence.

The research also found that 54% of advisors who moved from one captive broker-dealer firm to another had been displeased with senior management and another 54% had been concerned about the quality of their firm’s culture.

When they select a new firm with which to affiliate, experienced advisors are focused more on ownership of their books of business and factors that will enable them to operate efficiently and serve clients effectively than they are on compensation.

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