Written by: Mindy Diamond and Barbara Herman
As consolidation sweeps its way through the IBD world, smaller-producing advisors – particularly those operating in an OSJ – are left wondering what lies ahead for their businesses
The world of the independent broker dealer is spinning fast and consolidation seems to be the watchword on everyone’s mind these days. Mega-firms like LPL gobbling up smaller BDs like those under the NPH umbrella is something we are likely to see much more of in the coming months.
So what does this mean for advisors – large and small – who call one of these smaller BDs home?
Sure, the whole brokerage world is a meritocracy. And change is certainly nothing new. But the reality is that while being acquired by another firm is immensely disruptive for large producers and smaller ones alike, how they experience the process is very different. Larger producers will:
- Have the pick of the litter if they choose to go. Any time a firm is sold, advisors owe it to themselves – and, as fiduciaries, their clients – to make sure that where they will land is, in fact, the very best choice. There is a world of opportunity for larger producers.
- Have negotiating power with the acquiring firm. The firm will work hard to keep the biggest and best of the lot—if for no other reason than the PR around keeping a big producer is far better than losing one!
- Be offered the biggest retention packages. While the amounts will pale in comparison to what competitors are offering to incent recruitment, it will still be a nice windfall for an advisor who believes the new firm will be the right choice for his business.
Here’s the rub, though: Many of the BDs being acquired – certainly firms like SII and Invest Financial (part of the NPH family of BDs sold to LPL) – operate using a large producing group or an OSJ structure. (An OSJ or Office of Supervisory Jurisdiction is any office location of a member where the following activities occur: approval of new accounts, approval of advertising, order execution, and custody of customer funds or securities.) In practical terms, it means that many of these large producing groups have been formed within BDs and operate as independent branches that both supervise and offer consulting, middle and back office support, and other business services for a fee and have negotiated preferential treatment on behalf of the group. As a result, there are many very small individual advisors that “roll up” into these mini-firms. The group as a whole boasts impressive production and total AUM, but sitting under it is a plethora of smaller producing reps who may find themselves feeling like persona non grata in a post-acquisition home.
- They won’t get a vote in what their producing group decides to do; that is, move to LPL or find another option. Their voices won’t be heard and the likelihood of their businesses being best supported is left to chance.
- Without the leverage that comes from being a top producer, the “one off” exceptions and not-quite-a-fit pieces of business may eventually put these folks in jeopardy.
- As bigger fish in a naturally smaller pond, these advisors got the attention they needed. Under the umbrella of a mega BD, their importance becomes significantly diluted.
Take these real life examples of advisors individually generating between $100k and even $1mm in annual revenue:
- A $1mm producer whose business is made up of a vast majority of annuities is worried that LPL will not like and, therefore, not support his business. What hoops will they make him jump through? And, ultimately, will he be able to continue to run his business as he wants?
- A $300,000 producer with a solid business questions the pricing and service he will get under the LPL umbrella. In fact, LPL may currently be renegotiating some of its pricing terms for OSJs, and not to their advantage.
- An advisor with a small broker dealer that was acquired by LPL years ago who had been promised to remain siloed and hence immune to the bureaucracies and mandates that his like-sized colleagues were subject to, within 6 months found himself rolled into the whole. He reports it’s an onerous and bureaucratic environment as it is, and adding 3000 more advisors will make it even worse.
- The president of an OSJ who represents $2.4mm in revenue from 13 advisors is worried about the LPL acquisition because of the cultural differences, as well as becoming part of a network of what will be 17,000 advisors. He is also concerned that some of his reps, who are relatively new and just starting out, won’t even be accepted by LPL.
Advisors across the industry value culture more than ever. Many of these smaller advisors are used to being recognized by their names and not known simply as a rep number. Certainly no advisor, large or small, likes to feel marginalized as though they’ve had the power to run their business stripped from them with little warning and no say in the matter. Yet you can remain paralyzed by the situation or alternatively see this as an opportunity for you to find your voice and take back your power.
The reality is that there are many high-quality IBDs and RIAs that will continue to value the smaller individual advisor. So to these advisors we ask: Is it time to reinvent yourself and proactively determine your destiny?
Some helpful links for IBD Advisors:
In The Pursuit of Customer Experience Excellence
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