Independent brokers take on bank-owned firms

By Doug Watt | July 16, 2004 | Last updated on July 16, 2004
2 min read

(July 16, 2004) Independent brokerage houses are using the carrot of higher payouts to attract advisors from the big bank-owned firms. And the strategy appears to be paying off.

The IDA sampled 27 established independent retail firms with assets of at least $500 million for its latest Wealth Watch report. Those firms all experienced healthy growth in client assets under management, rising from $66 billion in 2000 to $106 billion in the first quarter of this year, a 66% jump. By contrast, assets at the six bank-owned dealers grew 33% during the same period.

“These are very encouraging numbers for the industry considering the analysis period spans most of the bear market,” the report says. “This evidence shows that independent firms have been able to project their advisory business and, despite difficult market conditions, have been able to compete head-to-head with the bank-owned dealers.”

Reasons for the independent dealers’ success include an expansion of products and services, increased quality of advisors through selective hiring and additional training, improved client service and the upgrading of technology platforms. “In essence, many of the competitive advantages that the bank-owned dealers enjoyed have slowly deteriorated.”

To illustrate the point, the IDA looked at mutual fund sales at brokerages over the past four years. Not surprisingly, given poor returns and the U.S. scandals, commissions and trailers from funds declined 26%, to $1.08 billion this year from a record $1.46 billion in 2000.

However, among the 27 independent firms the IDA studied, mutual fund revenues actually increased, representing 20% of overall revenues in 2003 compared to 14% in 2000 as the companies made “great strides in improving their selection of product offerings.”

The overall decline in fund revenues came predominantly from bank-owned dealers, whose numbers declined by one-third over the three-year period, due to a decline in investor demand for conventional stand-alone mutual funds in favour of alternative products, such as wrap programs, exchange-traded funds and income trusts.

Advisor payouts in the 27-firm sample group fell from $772 million in 2000 to $671 million in 2003, a 13% drop. Payouts at the bank-owned dealers slumped 30% in the same period. Why the discrepancy? Many independent firms maintained or increased the size of their advisory sales force in addition to incorporating competitive compensation structures, the report says.

Related News Stories

  • Small dealers survived, now thriving
  • Boutiquing past the banks (from the February 2004 issue of Advisor’s Edge)
  • “Higher payouts have been used by independents as an incentive to attract top talent away from competing firms.”

    Still, there’s no reason to shed tears for the bank-owned firms, who still dominate the securities industry with an estimated 65% of total revenues and 80% of client assets. The sample of the 27 independent firms showed an 80% profit plunge from 2000-2003, while profits at the bank firms were flat, as reduced revenues were offset by trimming operating costs.

    Filed by Doug Watt,,


    Doug Watt