Why IBDs Are Quietly Becoming the Most Popular Channel

Breakaway advisors opening up their own shops may grab all the headlines, but there’s an even more popular channel: independent broker-dealers.

IBDs grew 21% year-over-year in terms of AUM, according to Cerulli’s latest report — outpacing both captive broker-dealer outfits, which sell their own financial products, and RIAs. The IBD channel now accounts for 16% of overall industry assets and one-fifth of total advisor headcount. “The IBD channel has significantly outperformed all other channels this year in terms of total growth in AUM,” said Michael Rose, co-head of Cerulli’s wealth management practice and lead author of the report. “It’s not necessarily for the reason that people might assume. The growth … is really driven by consolidation.”

How IBDs Got Here

The M&A industry is booming, with the total number of IBDs in operation declining by more than a third over the past decade from about 124 in 2014 to 79 today. While the number of firms advisors can choose from has shrunk, the scale and capabilities of current offerings have increased, making them a more attractive option for independence-minded advisors. Don’t forget about the RIA channel, either. RIA consolidators that aggregate smaller firms now account for more than $1.5 trillion in AUM, which has led to the emergence of large, at-scale RIAs that can take on more clients and support more advisor teams.

“Ten-plus years ago, a practice that wanted to leave a traditional captive broker-dealer firm … They really were setting up their own practice,” Rose said. “They can still do that if they want ultimate control … Or they can tap into a variety of different at-scale RIAs, they can tuck into existing practices … The range of affiliation choices has really changed.”

Independence has always been appealing for advisors. According to the report:

• 71% of advisors said they would affiliate with an independent channel firm if they had to switch from their current company.
• 73% said greater autonomy would be a primary reason to choose an independent model if they were to switch.

Boutique or Bust. The future of independence may not look so rosy, however. Consolidation could make the boutique culture that a lot of breakaway advisors are looking for harder to find, Rose said. It’s just the way of the world, he added, given heightened regulatory complexity and the massive investments firms need to make in order to keep their tech stacks competitive.

“[Boutique firms] have more direct lines to senior management, and as IBDs consolidate and get larger, that boutique nature becomes harder to find,” Rose said. “Some advisors may not like that, but ultimately, that’s just the direction this business has to go.”