Fidelity Clearing & Custody Solutions, the division of Fidelity Investments that provides clearing and custody to broker-dealer firms, registered investment advisors (RIAs), family offices, retirement recordkeepers and banks, today released the latest report in its Fidelity Wealth Management M&A Series; ‘Insights from Independent Broker-Dealers’ (IBDs).
The report found that, year-to-date, USD136 billion in assets changed hands among Independent Broker Dealers (IBDs) as a result of five deals. This compares to the USD80 billion spread across 82 deals among RIAs during the same time period.
The report looks at how fewer, but bigger, M&A transactions are altering the future of the IBD channel. According to the report, Large IBD Acquirers – defined as broker-dealer firms with USD10 billion-plus in assets – drove the five IBD deals to-date and are helping to shape the IBD channel into a concentration of a small number of large firms. In fact, the top ten IBD firms in the marketplace now manage 65 per cent of all broker-dealer assets and 48 per cent of all broker-dealer advisors.
“There are many emerging multi-billion dollar RIA firms, but they are still far behind the significant scale of the largest independent broker-dealers, which have substantial assets and advisor bases,” says Scott Slater, vice president, practice management and consulting, Fidelity Clearing & Custody Solutions. “So, while we are seeing fewer IBD deals compared to RIA deals, those that are taking place are significant, both in size and in how they are creating innovative business options and platforms for advisors.”
According to the report, IBD M&A activity is heating up as a result of major changes taking place in the channel. Costs are rising as broker-dealers make investments in technology, advisor education and oversight to comply with regulations. And, lower advisor productivity is straining bottom lines – average assets per IBD advisor are USD32.9 million, whereas advisors at independent RIAs are twice as productive at USD66.6 million.
Drawing upon perspectives of members of the Fidelity M&A Leaders Forum, including extensive interviews with executives at Large IBD Acquirers, the report examines how M&A is providing IBDs an avenue to address these market pressures to increase size, productivity and revenue potential.
The report found that two models are emerging in today’s IBD landscape – large firms with scale and focused firms with a distinct value proposition to serve a niche.
Post-acquisition, large IBD Acquirers are standardising practices and procedures to improve efficiencies, while also maintaining advisor independence and choice. The report found that the large firms are focused on advisor engagement, management continuity and productivity improvements.