“The success of the dually registered channel was a highlight in 2012,” Cerulli Associates said in a recent report.
While RIA assets under management rose by 14.7%, advisors able to receive both fees and commissions did even better, increasing their assets by 19.1%. These two channels led the way last year, which Cerulli attributed to advisor movement from other channels.
“With access to both commission- and fee-based business, dually registered advisors have additional ways to generate revenues,” Cerulli associate director Tyler Cloherty told Financial Planning. “They might continue to collect trail commissions from mutual funds, for example. Some dually registered advisors may start their own RIA yet maintain their relationship with an independent broker-dealer for back office services, research, and so on.” Some advisors also might want to retain their ability to offer commission-based products such as variable annuities, Cloherty added.
According to Cerulli, the dually registered channel is especially popular among advisors moving from independent broker-dealers. These advisors are used to independent operation while their increased reliance on fee-based relationships makes the economics of managing those relationships under their own RIA more attractive than using their IBD’s corporate RIA.
In fact, aggregators have chosen the dually registered model, which offers the easiest transition for advisors with both fee and commission business, often the case with wirehouse and other broker-dealer advisors. By offering equity as well as payouts, those aggregators have had success recruiting productive advisors from wirehouses, regional firms, and private banks. “Broker-dealers should consider offering advisors multiple paths within their firm to help retain advisors under one umbrella,” the Cerulli report suggested.
Looking ahead, Cerulli sees wirehouses losing 6.9% of asset market share from 2011 to 2014. The RIA and dually registered channels are expected to gain some of those assets, with projected increases of 2.2% and 2.4%, respectively. However, Cerulli sees regional firms as the biggest winners, with a 3.5% increase in asset market share.
Wirehouses are concentrating on more affluent investors and moving away from the mass market, according to Cloherty, so there is some planned attrition among their advisors. “Low- to mid-level advisors may be solid producers at regional firms,” he said. Adding such advisors and serving investors that the wirehouses no longer pursue may allow regional broker-dealers to increase their share of client assets this year and next.