Brokers 'Breakaway' In Record Numbers
Tuesday, July 26, 2011

TD Ameritrade Institutional attracted a record 260 'breakaway' brokers in the first three quarters of fiscal 2011 as more brokers choose to become independent registered investment advisors (RIAs) ahead of a wave of regulatory changes likely to impact the brokerage industry in the US.

The firm, a division of TD Ameritrade, Inc., a brokerage subsidiary of TD Ameritrade Holding Corporation, said that the number of brokers signing up for its services in the first three quarters was 20% higher than in the same period in the previous year.

Tom Nally, managing director of sales, TD Ameritrade Institutional, said that the fee-based fiduciary business model of independent RIAs is attractive to brokers "who want to be proactive and don't want to sit back and wait to see how a rewrite of the fiduciary rule and other pending regulatory changes might impact their livelihoods".

"Because RIAs already operate as fiduciaries, brokers at traditional full-commission firms foresee fewer regulatory challenges and fewer conflicts of interest in the independent model, which can be good for business and good for clients," he observed.

TD Ameritrade Institutional provides brokerage and custody services to over 4,000 fee-based, independent RIAs and their clients.

Traditional brokerage firms believe that the trend towards brokers becoming independent has been overstated: Merrill Lynch was said by Reuters to have expanded its broker ranks by 546 in the last quarter. However, Brent Forrest, president, Brent Forrest & Associates, LLC, which manages approximately USD250m in assets, suggested that the conventional brokerage model hasn't been able to keep pace with the transformation of the industry toward more transparent, low cost ways of delivering advice and management. "TD Ameritrade Institutional's flexible technology and economies of scale allowed us to do more for less and pass along the savings to our clients," he noted. "Besides, we had already been doing our best to act as fiduciaries. Why not be regulated and recognized as such?"

According to the latest TD Ameritrade Institutional RIA Sentiment Survey, advisors surveyed report the majority of their new assets (56%) are coming from traditional full-commission brokerage firms. 20% of respondents said that this is because RIAs are required to offer advice that is in the best interest of clients. The same number said that RIAs offer more personalized service and competitive fee structure while 17% responded that clients were dissatisfied with service, advice, performance or fees at full-commission brokerage firms.

"Advisors we talk to are focused on taking control of their futures. They want the freedom to do what's right for their clients, choice and flexibility in investment options and the potential financial benefits associated with becoming an independent advisor," said Nally. "Going independent by establishing a firm or joining an existing RIA is a preferred path for advisors, especially as more investors turn to the independence and objectivity of the RIA model for help managing their wealth."