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New Tiburon Research Report - An Initial Overview of the Independent Reps & Independent Broker/Dealers Markets

Tiburon Strategic Advisors, a market research & strategy consulting firm serving a wide variety of financial institutions and investment managers, is pleased to announce the release of its newly updated research report on Independent Broker/Dealers Markets. This research release summarizes some of the report's key findings.

Please click the image above to view the table of contents for Tiburon's Independent Broker/Dealers Markets Research Report

The purpose of this report is to provide readers with an initial overview of the independent reps & independent broker/dealers markets, which is a booming market of over 90,000 series seven registered reps who own their own businesses and utilize independent broker/dealers such as LPL Financial Services, Raymond James, Royal Alliance, FNIC, Securities America, & Commonwealth Financial Network. This is Tiburon’s third draft of this report.

Tiburon’s first draft of this report was written in 2005; that version focused primarily on developing an organized structure for reviewing the independent rep & broker/dealer market, and establishing profiles of the hundreds of complex industry participants, many of which are owned by insurance companies.

Tiburon’s second draft of this report was written earlier in 2008; that version focused on refining the market history chapter, incorporating some recent Tiburon research on independent broker/dealers’ technology offerings, & building complete frameworks for all broker/dealers’ profiles.

This is Tiburon’s third draft of this report. This version brings this report into alignment with other Tiburon research reports, fleshs out its market history chapter, begin to reconcile the list of independent broker/dealers, & enhances the profiles of some core Tiburon clients, including LPL Financial Services and Commonwealth Financial Network.

Key Findings

This report has a long list of interesting facts to share:

Evolution of the Independent Reps Business
This chapter, which makes up about one-third of the report, presents a historical overview of the independent rep & independent broker/dealer markets, which includes market history, market growth, market segmentation, competitive forces, & current status followed by leading independent broker/dealers.

Market History

  • The independent broker/dealer & independent rep market emerged out of the life insurance industry in the 1960s to 1980s, which has been followed by periods of rapid consolidation, firm restructurings, and maturation
  • LPL predecessor Linsco acquired Private Ledger to form LPL in 1989
  • ING was formed through the 1991 merger of insurance company Nationale-Nederlanden and Bank NMB Postbank Group, which came as the result of the lifting of merger restrictions between insurance companies & banks in the Netherlands
  • Wells Fargo acquired two independent broker/dealers, including HD Vest in 2001 and FAS Holdings in 2002
  • Independent broker/dealers maintained volume and profitability in the down market of 2002 to 2004
  • Ameriprise Financial acquired H&R Block Financial Advisors in 2008

Market Definition

  • Depending on the definition utilized, there are 4,800 to 5,000 independent broker/dealers
  • Depending on the definition utilized, there is $48 to $64 billion independent broker/dealer assets under management

Market Growth

  • There are 100,485 independent reps, up 5% since 2001
  • Broadly defined independent broker/dealers have $2.0 trillion assets under administration

Market Segmentation

  • Nearly one-third of independent reps hold the Certified Financial Planner designation
  • Independent reps aim to appeal to investors who are dissatisfied with their wirehouse or regional broker/dealer and may not be able to afford the high minimums of fee-based financial advisors
  • In size terms, LPL is the Industry leader both in number of reps and revenues, with Raymond James & Lincoln Financial Advisors the only nearby competitors

Key Issues

  • The largest share of independent reps’ clients are in the moderately affluent category of $100,000-$1.0 million in investable assets
  • The average rep firm has 260 clients; the largest independent reps serve almost three times as many as the average
  • The average rep firm has $37 million in client assets under administration; Raymond James and Advantage Capital reps lead the way
  • Business expenses for the average independent rep total $204,000 and are led by compensation for reps and administrative support personnel
  • Almost half of all independent reps intend to sell their businesses upon retirement, with selling to an existing partner or employee being the most popular planned exit strategy

Leading Independent Broker/Dealers

  • LPL and Raymond James Financial services are the leading independent broker/dealers in terms of the number of reps, with LPL Approaching 6,000; NFP Securities and Commonwealth only have 1,000 reps apiece
  • Raymond James Financial Services and LPL have nearly $100 billion assets under administration; other leading firms have between $5 and $25 billion assets under administration
  • LPL, Raymond James Financial Services, and Lincoln Financial Advisors are the leading independent broker/dealers in terms of revenues, generating over $500 million each; the other leading firms generate between $150 million and $350 million

Key Vendors to Independent Reps

This chapter highlights key vendors of independent reps and independent broker/dealer markets.

Independent Broker/Dealers

  • The independent broker/dealer market is comprised of mostly smaller firms; only 15% of independent broker/dealers have more than 100 reps
  • The average independent broker/dealer generates more than $65 million revenues per rep, which has increased nearly 25% since 2001
  • LPL and MSC Reps seem most satisfied with their product, sales, & marketing support
  • Across the industry and the various products, payouts are in the 80%-90% range (with the exception of general securities which are generally closer to 70%); many firms have one grid for all non-general securities products
  • Over three-quarters of breakaway brokers join independent broker/dealers

Clearing Brokers

  • Bank of New York Mellon Corporation’s Pershing has more than twice the independent broker/dealer clearing agreements than its closest competitor
  • Mutual funds and annuities generate half of the revenues for many of the leading independent broker/dealers’; NFP Securities is the exception, generating two-thirds of its revenues from insurance products

Mutual Fund Companies

  • American Funds is the leading mutual fund family by almost any measure in the independent rep market

Turnkey Asset Management Programs (TAMPs)

  • Independent reps utilize a wide variety of turnkey asset management programs (TAMPs), with SEI being the leader

Wealth Management Service Product Companies

  • Independent reps have turned the tables on banks that got into the financial advice business by offering banking services

Technology Companies

  • Portfolio management software utilization increases with revenues and dbCams is the most popular portfolio management software across most revenue segments

Other Key Vendors to Independent Reps

  • Bill Bachrach, Tom Gau, and Dan Sullivan are the three most popular financial advisor coaches

Future Predictions for the Independent Reps & Independent Broker/Dealers Market

This chapter outlines the future predictions of the independent rep & independent broker/dealer markets.

Rapid Industry Growth

  • Independent broker/dealers had almost $760 billion assets under administration in 2006, growing 125% by 2012
  • Broadly defined independent broker/dealers had over $500 billion assets under administration in 2001, growing 400% by 2012
  • There is some evidence that the independent broker/dealer market is hardly growing at all; the top 50 firms lost nearly as many reps as they gained indicating reps may be jumping from firm to firm

Continued Profitability Pressures

  • Compliance cost burdens could inevitably lead to industry consolidation and that either client fees will rise or individual broker/dealers will have to absorb the growing costs

Continued Consolidation

  • To be considered a major independent, a firm must have $50 million in annual revenues and employ more than 300 reps; leading firms should also be able to point to revenues per rep exceeding $50,000
  • The largest acquisitions have already occurred; consolidations have slowed down because of the lack of acquisition candidates

Value Added Playing Field

  • Independent reps are realizing that they need to look beyond the percentage payout to what is available at the organization to help grow their businesses

More Information

The following links will open specific pages on Tiburon's web site:

Tiburon Strategic Advisors

Tiburon Strategic Advisors, based in Tiburon, CA, was formed in 1998 to offer market research & strategy consulting services to all types of financial institutions and investment managers:

  • The firm has served over 300 corporate clients and completed over 1,100 projects since its founding, and today, its knowledge base includes mutual fund distribution, separately managed account programs, alternative investments, wealth management, insurance products, banking services, the fee-only financial advisor market, the CPA firm market, the family office market, and various international markets.
  • Tiburon holds a series of CEO Summits semi-annually for its executive-level clients. The next CEO Summit is scheduled for October 14-15, 2008 at the Ritz Carlton Hotel in San Francisco, CA. 2009 dates are April 9-10, 2009 (New York, NY), and October 7-8, 2009 (San Francisco, CA). Attendance is by invitation only and attendance at each Summit is managed to between 100 and 125 senior industry executives. Visit the CEO Summits section of Tiburon's web site for details on current and past CEO Summits, including attendee lists, meeting agendas, and highlights. Please contact Tiburon's Managing Principal Chip Roame at CRoame@TiburonAdvisors.Com or (415) 789-2541 if you are a Tiburon client and have an interest in attending a future Tiburon CEO Summit.
  • Tiburon has published forty-seven ~300-400+ page research reports, which offer detailed analyses of growing business segments; each is available for $5,000; these reports can be ordered by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540.
  • Tiburon offers an annual research report access program, whereby dozens of clients receive all Tiburon reports published within a year for $25,000; clients can subscribe to Tiburon's 2009 Research Report Access Program by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540.
  • Tiburon also offers a database access program, whereby it shares its 300,000+ person industry executives contacts database with dozens of clients for $25,000 per year (distributed quarterly); clients can subscribe to Tiburon's Database Access Program by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540.
  • Tiburon offers thirteen online business benchmarking tools that are available to all types of financial advisors in an effort to help them benchmark their business practices and build more successful businesses. The sites include www.BrokerBestPractice.Com for wirehouse & regional brokers, www.FABestPractices.Com for fee-based financial advisors, www.IndependentRepBestPractices.Com for independent reps, and www.PrivateBankerBestPractices.Com for private bankers. Almost 5,000 advisors have used these tools. By completing one of the online surveys, financial advisors can access a FREE copy of the relevant comprehensive Tiburon research report, which summarizes and analyzes the collective results.
  • Tiburon's weekly research releases, like this one, are emailed for free to interested industry executives, media representatives, conference planners, and individual financial advisors. Over 55,000 industry executives now receive these releases. Feel free to sign up to receive future research releases at Tiburon's web site (www.TiburonAdvisors.Com) if this release was passed to you by a colleague and you would like to receive them directly in the future.
  • Tiburon plans to expand its workforce in 2008-2009. Specifically, the firm plans to add two-to-three incremental principals (the most senior role at the firm) and several more research managers in 2008-2009.
  • Tiburon has built three executive programs (CEOs-in-Residence, Financial Advisor Roundtable, and Consulting Fellows) in an effort to bring the experiences of additional senior level industry executives to Tiburon clients. Feel free to contact any of the members of Tiburon’s executive programs directly or ask that they be included in any ongoing Tiburon project.

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