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See Table of Contents for Tiburon's Current Events Research Report
New Tiburon Research Report - Competition & Advice: Predicting the Winning Markets & Distribution Channels

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 Markets & Distribution Channels. This research release summarizes some of the report's key findings.

The purpose of this report is to provide readers with an initial understanding of the vast array of markets & distribution channels through which financial services products are delivered, including the self-serve, financial advisor, institutional, & international channels. As flows across these channels have grown the quickest in the various financial advisor channels, this report emphasizes the highlights and developments in retail banks, full-service brokerage firms, independent reps, fee-based financial advisors, other financial advisors (such as insurance agents, CPA firms, & estate attorneys), and several upscale channels (such as private banks, investment banks, and family offices). This is the second draft of Tiburon’s research on this topic.

Tiburon’s first draft of this report was published in 2007; that draft consolidated prior Tiburon research into one report. Several of the underlying market & distribution channel reports (including online brokerage firms, online banks & mortgage companies, online insurance companies, retail banks, full-service brokerage firms, independent reps, fee-based financial advisors, insurance agents, & CPA firms) had previously been published. That version of the report was intended to summarize those reports, take into account the impact of the key driving factors (consumer wealth, institutional markets, and current events), and offer some predictions across the markets & distribution channels.

This is Tiburon’s second draft of this report; this draft brings this report into alignment with the revised drafts of many of its underlying reports.

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

Online Tools & Advice

  • Between 1995 and 2000, the internet penetration in the United States tripled from less than 15% to almost half of households
  • Morningstar is the most popular financial planning software product across revenue ranges
  • The number of personal computers in circulation will likely reach 570 million by 2013, up over 100% since 2007
  • The number of personal computers in use worldwide will reach 2.0 billion by 2014, up over 100% from 2007
  • Online tools & advice firms will earn $24 billion by 2013, up 60% since 2007

Online Brokerage

  • The number of discount brokerage firms has now slipped below the 50 mark, down about 35% from the peak of 77 in 2002
  • When including its clearing & 401K assets, Fidelity Investments has a huge lead in total assets
  • There are four advantages of scale moves in the discount brokerage market that will drive further M&A activity in the future, including increased commission revenues, improved margins, upgraded customers, and added cross-selling opportunities
  • Through mergers & acquisitions, the number of online brokerage firms will continue to dwindle

Online Banking & Mortgages

  • The top ten online banks now have nearly 35 million customers, up 100% since 2002
  • Not surprisingly, younger people are much more likely to bank online than the elder generations
  • Bank of America is the top online bank, with over thirteen million customers banking online
  • Perhaps not surprisingly, some estimates suggest online banking will some day reach three-quarters penetration of bankers

Online Insurance

  • The argument for online service is centered on lowering cost; a simple administrative customer service task such as checking on a claim could cost a company more than twenty times what it would to be handled online
  • Eventually nearly all insurance contracts will be entered over the web, either by consumers or their agents

Retail Banks

  • There are 11,426 broadly defined retail banks, including 7,426 traditional retail banks plus 1,000 savings & loans and 3,000 credit unions
  • Broadly defined retail banks generate $60.0 billion revenues, including $45.0 billion by traditional retail banks
  • Traditional retail banks have $9.0 trillion assets
  • Banking industry executives feel that if their banks are in acquisition mode, other banks or thrifts are the likely targets
  • Some estimates predict that the ten largest retail banks will account for over half of domestic banking assets

Full-Service Brokerage Firms

  • The typical broker is 44 years old
  • Over three quarters of brokers are male
  • Almost all brokers have series seven licenses, with only ten percent not obtaining the license
  • There are now over 5,000 brokerage firms, up over 100% in the past twenty five years
  • Today, brokerage firms employ almost 700,000 series 7 registered individuals, compared to just 181,000 30 years ago
  • Independent broker/dealers have over 61,000 producing reps in 2006, growing 33% by 2012
  • Nearly one-third of independent broker/dealers’ new reps are recruited from other independent broker/dealers
  • 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

Independent Reps

  • The independent broker/dealer market is difficult to measure because of the great number of small independent broker/dealers & substantial number of low producing part-time reps, and their other overlapping definition with both insurance agents and fee-based financial advisors
  • There are 147,863 broadly defined independent broker/dealer reps, up 4,000 since 2001
  • There are 34,004 broadly defined independent broker/dealer reps producing more Than $100,000
  • Broadly defined independent broker/dealers generate $11.1 billion revenues, up over 35% since 2001
  • The average rep firm has $37 million in assets under administration; the largest independent reps have more than three times the average assets ($124 million versus $37 million)
  • Independent broker/dealers have over 61,000 producing reps in 2006, growing 33% by 2012
  • Nearly one-third of independent broker/dealers’ new reps are recruited from other independent broker/dealers
  • 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

Fee-Based Financial Advisors

  • Two methods exist for sizing the fee-based financial advisor market, including counting the underlying firms and counting the custodians
  • Defining the fee-based financial advisor market is difficult for many reasons, including overlapping federal & state registration processes, the fact that the registered investment advisor definition includes non-fee-based financial advisors, & the double counting of IBD reps
  • The number of fee-based financial advisors ranges from 7,518 to 18,159 depending on which segments are included, with 18,159 possibly being the most useful estimate
  • The Charles Schwab Corporation is the largest custodian for fee-based financial advisors
  • Almost all of fee-based financial advisors’ assets under management are invested in mutual funds, equities, & bonds
  • The fee-based financial advisors market will likely see many developments, including a slowing in the growth of the number of fee-based financial advisors, but rapid growth in their assets under management, continuing central role of custodians & difficulty in penetrating custody market, continuing use of mutual funds & growing use of exchange traded funds, alternative investments, & wealth management products, increased telephone & virtual wholesaling strategies, opportunities in outsourcing, & finally some consolidation in the industry
  • Larger fee-based financial advisors expect to defy the law of large numbers by growing at a faster rate than small fee-based financial advisors
  • The three largest fee-based financial advisor custodians serve over 67% of fee-based financial advisors
  • Fee-based financial advisor mergers & acquisitions are up over 600% since 1999, with 81 deals taking place in 2007

Insurance Agents

  • Reps utilize a wide variety of annuity companies, with Nationwide (Best of America), Sun America, and American Skandia being the leaders
  • Genworth Financial Wealth management reports serving the most insurance companies, but many speak of Brinker Capital and independent portfolio consultants in the insurance marketReps utilize a wide variety of annuity companies, with Nationwide (Best of America), Sun America, and American Skandia being the leaders

CPA Firms

  • There are 450,000 Certified Public Accountants, with growth having slowed over recent years
  • Of the 450,000 CPAs, a few more than 175,000 are in private practice or public accounting
  • Half of all individual income tax returns are completed by paid preparers
  • The majority of CPAs have less than $25 million in investable assets; this may be explainable by the part-time nature of this business for most CPAs

Upscale Channels

  • The upscale channels industry includes 74 firms
  • The upscale channels firms have $35.2 trillion assets under administration
  • The upscale channels firms generate $24.2 billion in revenues
  • Processing banks account for the greatest number of employees in the upscale channels with nearly 70,000 employees

English Speaking Countries Markets

  • US consumer wealth dwarfs that of the United Kingdom & Ireland, with about over four times the assets
  • The British high net worth & ultra-high net worth classes control nearly three-quarters of financial assets
  • By 2050, the margin between the United Kingdom population over the age of 65 and that of the US will be largely the same
  • South Africa currently has 55 registered banks, including twelve foreign banks and four mutual banks
  • Big banks dominate the English speaking markets; the concentration of share in the Canadian, United Kingdom, and Australian banking industries makes these markets at least four times as intense as the US
  • There are two fundamental ways for foreign financial services firms to enter the English speaking markets – build or buy
  • The volume of leveraged buyouts is up substantially in the United Kingdom since 2003

Europe, Middle East, & Africa Markets

  • The European Union Parliament is well diversified across members, with Germany the most heavily represented with one-seventh of parliament members
  • The US has nearly 50% more wealth than Western and Eastern Europe combined
  • Europe has the second largest share of worldwide internet users with about 30%
  • The largest bank in Germany is Allianz, trailed somewhat closely by Deutsche Bank

Asia Pacific Markets

  • The US has about double the wealth of Japan, China, and India combined
  • US investments are much heavier in equities than Japanese investments, but not much more so than Indian investments- likely due to that country’s ties with England
  • Asia leads the world in internet users, with nearly 40% share globally
  • Previously, the Asian credit market has been dominated by a handful of large players such as CitiFinancial, and less reputable firms just a step up from loan sharks

To better understand the developments for Markets & Distribution Channels, executives can purchase Tiburon's Competition & Advice: Predicting the Winning Markets & Distribution Channels research report where the key findings highlighted above are covered in greater detail. Please contact Sarah Sage at SSage@TiburonAdvisors.Com or 415-789-2540.

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