Rubesh Jacobs, Abhay Patil and Tanpreet Singh co-wrote this blog post with Sargam Gosain.
Advisor movement is of course part and parcel of the natural dynamics in the industry: as advisory practices grow, build sustainable books of business and mature their business models, they decide to seek more attractive business opportunities. But the prevailing view in the industry is that advisors are leaving the wires in droves to join independent broker dealers (IBDs) and RIAs. However, our analysis, based on investment advisor data published by the SEC, shows that this narrative just isn’t accurate.
Figure 1: Key events shaping advisors’ likelihood to move from firm to firm
Since 2008, through the longest bull market in history, advisory practices have been on the front lines of a changing industry: Revenues are pressured because of decreasing fees due to product competition, and costs are increasing, driven by new regulations, new technology and automation.
Advisors, seeing how these changes could impact their business, have jumped at the opportunity to make more money. Some take lucrative offers from competing firms, while others exit the business altogether. Whatever the reason, taking a closer look at the magnitude and flow of advisor movement could help asset managers and others in this ecosystem keep up with the changes (for example, keep their CRM up to date) and improve their relationships with advisors by creating a program that supports some aspect of a move.
From 2009 to 2012, an average of 28,000 advisors left their firms. However, from 2013 to 2018, only an average of 20,300 advisors left their firms, with more advisors jumping ship in 2015 and 2016. Although the need for advisors to reduce cost of compliance related to the then-new DOL fiduciary rule and access technology could have sparked the sharp increases, the narrative that emerged was that wirehouse advisors were increasingly opting for independence.
Figure 2: Total number of advisors leaving firms, 2013-2018
But in Figure 3, the data tells a story that opposes that narrative: the percentage of advisors leaving RIAs, 86%, increased dramatically, while those leaving independents, 27%, was more sedate, and advisors leaving the wires decreased by 32%.
Figure 3: Number of advisors leaving by channel, 2013 -2018
On the flip side of the coin, the total number of advisors joining firms is declining, from over 28,000 in 2013 to a little less than 26,000 in 2018 (see Figure 4 below).
Figure 4: Total number of advisors joining firms, 2013-2018
From 2009 to 2013, an average of 37,000 advisors joined firms. Triangulating with information from Figure 1, we could explain the sharp drops in advisors joining firms by large wires exiting the broker protocol and large M&As. However, when we peel the onion (see Figure 5 below), what emerges is a slight decrease in advisors joining wires (26%) and RIAs (20%), a meaningful increase of advisors joining regionals (43%), and huge swings with independents (a 26% drop of advisors joining from 2013 to 2015, a 48% increase from 2015 to 2017 and a sharp decline of 28% from 2017 to 2018).
Figure 5: Number of advisors joining firms by channel, 2013-2018
The question is, when advisors leave their firms, where do they go? Contrary to the prevailing narrative, advisors are not leaving the wirehouses to join IBDs or regional broker dealers (RBDs): 90% move to other wires, 7% to IBDs and 3% to RBDs. And in fact, as Figure 6 shows, advisors who leave tend to join another firm within the same channel.
Figure 6: Paths of advisor movement across channels, 2013-2018
Note: Chart includes advisors moving in the broker dealer channel (for example, an advisor who left a wirehouse and moved to a broker dealer is being counted, while an advisor who left a wirehouse and moved to an RIA hasn’t been factored in).
Even so, it’s fair to ask whether advisors started migrating from wirehouses to IBDs and RBDs in 2016. The flow is not all that different from 2016-2018 (87.6% to wires, 4.5% to RBDs, 7.9% to IBDs), meaning that wirehouse advisors are not moving to be independent. Similarly, staying independent is important to IBDs and RBDs.
One way or another, about 15-20% of advisors change firms every year. The industry spends a significant amount of money and resources on advisor movement: broker dealer recruiting, papering and retaining advisors, asset manager tracking, developing and growing relationships with advisors and infrastructure providers enabling smooth transitions. Here are a few things to think about when it comes to advisor movement:
1. How can you improve your approach for managing the data on advisor movement? Most firms receive this information via third-party data services. Perhaps it’s time to consider a faster, cheaper way to stay abreast of advisor movement data.
2. How would you change your value-add of recruiting offers for advisors on the move? Our analyses indicate that most advisors on the move are high-value, but they get a cookie-cutter experience from firms trying to recruit them.
Using publicly available information to debunk myths about advisor movement goes a long way in improving the advisor experience. In our next series of blogs, we’ll discuss whether flows of assets follow the flow of advisors, and whether broker dealers attract and recruit advisors from specific firms.