Specialist
Former executive at Cetera Financial Group Inc
Agenda
- IBD (independent broker-dealer) and RIA (registered investment advisor) operating environment – rising rates’ impact on revenues across cash spreads and fees, plus client retention risks
- Advisor recruitment trends – risk of rising advisor acquisition costs and wirehouses’ ability to curb attrition
- Competitive dynamics across IBDs and RIAs, including potential winners and losers
- Potential for additional industry consolidation and M&A multiples’ sustainability
- H2 2022 outlook, highlighting regulatory risks, especially from resurgence of DOL (Department of Labor) fiduciary rule
Questions
1.
It’s been a couple of months since we last spoke [see Independent Broker-dealer Update – Cetera, Advisor Group, LPL, Raymond James & More – August 2021]. What are your thoughts on the operating environment for IBDs [independent broker-dealers] and RIAs [registered investment advisors] since then? Could you pull out a couple of key trends?
2.
It’s a different interest rate environment since we last spoke, and there’s now also more equity market volatility. How do you view firms managing this current and potentially sustained volatility? What’s your outlook for cash spreads and fee revenues considering the macro backdrop?
3.
You alluded to fee compression more so hitting the financial advisor. Are you seeing any fee pressures on the firms? Does this vary by target client demographic or other metrics? What could drive fee compression if it continues?
4.
Have you seen any differences or changes with client retention trends given the backdrop? Do you expect any changes?
5.
What magnitude of client turnover could we see? What’s similar vs different compared to 2007-08 or even 2000?
6.
What are you seeing in terms of advisor recruitment trends? How aggressively are firms recruiting advisors, and what does that mean for cost? If you’re an advisor in today’s environment, how likely are you to break away from a wirehouse and go independent?
7.
Do you expect advisor acquisition costs to increase? Is there a certain cap on what people are willing to pay, so we’ll just see lower volumes for the remainder of 2022, based on your comments?
8.
You mentioned having seen more than 20x and 80% upfront on the M&A front, but maybe now seeing 18x but only 40-60% upfront. How could M&A multiples and payout dynamics evolve?
9.
We’re seeing more RIAs looking to acquire or hire in the IBD pool. What could this do to advisor recruitment dynamics?
10.
You alluded to PE-owned names potentially exiting investments. We discussed when we’ll see insurance companies looking to divest their BDs [broker-dealers] in our August 2021 Interview. How do you think about any larger, more transformational deals we could see?
11.
What range of multiples would you expect if larger platforms start to trade hands?
12.
Is there anything new in terms of the competitive landscape? What have you seen on the IBD side with LPL, RayJay and Cetera, or on the RIA side with Focus Financial or Dynasty? Have there been any material changes in the last 12-18 months?
13.
You mentioned we could see competition between TAMPs [turnkey assessment management programmes] or wealth management tech providers and IBDs. We’ve discussed historically whether or not some of the IBDs may look to disintermediate TAMPs with their own offerings. When would you expect this to come to a head? Is it 3-5 years out? Could you handicap the potential outcomes?
14.
One of the big unknowns of another specialist we spoke to [see Independent Broker-dealer Update – Advisor Recruitment & Consolidation Trends– 07 March 2022] was what happens with regulation, particularly with BDs if we see some resurgence of the DOL [Department of Labor] fiduciary rule. Do you see any regulatory risks or changes on the horizon? What could be the implications of anything that goes through?
15.
Why do BDs typically have the cash sweep offering when RIAs don’t? Is it a fiduciary issue or is there something else that restricts them?
16.
What’s your outlook for the IBD and RIA space? Is there anything that we didn’t discuss that you want to put out there, or anything that you find to be commonly misunderstood by clients?
