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Top 25 Broker Dealers Manage 93% of Assets: Cerulli

Consolidation among broker dealers is having significant impacts on the industry and it’s not expected to slow down anytime soon.

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Brokers beget brokers. 

The largest broker dealers are getting larger and that’s leaving a lot less room for the little guys, according to new Cerulli data. The 10 largest broker dealers control 58% of all brokerage assets, and more than 90% is now managed by the top 25 firms. That level of consolidation is having significant impacts on the industry, and it’s not expected to slow down any time soon, according to Cerulli’s director of wealth management, Mike Rose. 

“It’s going to be increasingly difficult to operate a very small broker dealer given all of the increasing challenges they face,” he told The Daily Upside. “For those advisors that really want a boutique environment to operate in, they will have increasingly fewer choices.”

Tip the Scale

As boutique firms dwindle, top brokers are offering better technology, more support, and sweeter compensation packages to attract advisors. These aggressive recruiting campaigns are in large part driving the trend, Cerulli said. More than 6 in 10 advisors in the brokerage channel now work for one of the top 10 firms. There are a handful of major factors playing out that are pushing the consolidation:

  • Increasing regulations make it more challenging for smaller firms to operate. 
  • The move away from traditional mutual funds to less-lucrative ETFs and passive strategies is causing revenue pressure.
  • Larger firms have bigger balance sheets, allowing them to offer more competitive recruitment packages to attract advisors. 

RIP Boutiques? Many niche brokerage firms are finding it’s easier to simply keep their corporate RIA or affiliate with a hybrid independent broker dealer, Rose said. A growing emphasis on financial planning may be one way to differentiate brokerage offers, he added. That’s because the movement toward more holistic planning hasn’t caught up with investor demand. Less than a quarter of brokerage advisors are focused on financial planning, and just 18% highlight wealth management services to clients. 

“I don’t know that it necessarily means less choice for other advisors,” Rose said. “The firms [advisors] are dealing with are going to be larger.”