Independent Broker-Dealers: Boomer’s retirement needs vex reps

Registered representatives and advisers worry about being able to offer a greater mix of investment products to their baby boomer clients and receiving better support services from their broker-dealers to meet those clients’ needs when the first wave of boomers hits the official retirement age in 2011.

The preliminary findings of a new study showed that registered representatives believe that broker-dealers are falling short in some key areas of retirement planning.

The study, “Broker-Dealer of the Future,” was conducted by Pershing LLC in cooperation with InvestmentNews and Cast Management Consultants Inc. of Los Angeles.

Tax mitigation support, or support for tax-efficient investing, from broker-dealers to reps is subpar, and estate-planning needs are only adequately supported, according to the study.

The study also revealed that advisers and brokerage executives have different perspectives. “Broker-dealers appear to be placing too much importance on firm culture, brand, support and specialized-niche focus,” the study said. Advisers, meanwhile, put more importance on compensation and technology, it said.

Reps and advisers expect long-term care, charitable giving and business succession planning to emerge as newly important areas for clients over the next five years, according to the study, which was divided in two parts. One part was based on 715 responses from reps and advisers, and the other was based on responses from 76 broker-dealer executives.

The consequences of failing to adjust are potentially costly, said one executive. “The winners in our industry are going to be the ones that change and do evolve,” said James T. Crowley, managing director of Pershing of Jersey City, N.J. “Those that choose to stay the course will start to diminish in value.”

“Boomers are struggling to find [an adviser] who can pull it all together,” Mr. Crowley said. “For most boomers, it’s a challenge if they have meaningful assets.”

Advisers are likewise tested, Mr. Crowley noted. “The whole tax-efficient-investing process is a challenge for advisers,” he said. “How does an adviser manage that process, and how does a broker-dealer help?”

The report was based on preliminary findings in the study, which Pershing intends to release with much greater detail and information in the spring. Each of the two surveys was conducted online September through December.

For the most part, the advisers who participated in the survey were industry veterans. They had 18 years’ experience on average, and more than one-third had been in the industry for more than two decades. Most considered themselves financial planners or advisers, with more than one-half affiliated with an independent broker-dealer.

Advisers’ outlook for the future was rather “rosy,” with many respondents anticipating growth across the board, according to the study. On average, they anticipated that their base of clients would increase by 57% over the next five years, at that time serving 419 clients. Likewise, broker-dealers saw significant growth in their business, particularly in advisory business, over the next five years.

Firms participating in the study expected that those with annual advisory revenue of more than $20 million would double to 44% of all firms, from 21%. The number of firms holding $1 billion in advisory assets under management was predicted to double to 61%, from 31%.

There are disconnects between advisers and their broker-dealers, one consultant noted.

“About a firm’s culture, reps are saying it’s important, but not as important as technology or the ease of doing business,” said George Braunegg, a principal with Cast Management Consultants and director of its financial services division.

Broker-dealers and their reps are not always in agreement in a number of areas, according to the study.

For example, advisers responded that equity sharing was the top practice-related benefit from a broker-dealer, but slightly more than half of broker-dealers surveyed did not offer it. Among those that didn’t, more than half were likely not to have such a program in place in the next five years.

Likewise, advisers rated practice succession as the second-most-important benefit a broker-dealer could offer, but slightly less than half of the firms gave reps support in that area. However, most planned to address that issue.

Advisers rated retirement planning as the top client need, saying that their broker-dealers were giving them the highest level of support in that area. They rated mutual funds as the most needed product, but in five years, mutual funds were expected to fall to second in that area, just slightly behind individual retirement accounts. Products such as trust accounts and health insurance, which advisers rated as the seventh- and eighth-most-important products, respectively, were expected to gain in importance over time.

Broker-dealers are taking heed. “Among emerging needs, broker-dealers have plans to shore up their existing offerings,” the study said. Both broker-dealer executives and reps agree that managed assets such as separately managed accounts will increase as a percentage of a client’s portfolio over the next five years, although the two sides differ slightly on the magnitude of that change.

The study underscored the move away from commissions. “The transaction model is getting less,” Mr. Braunegg said.

The study also showed how complicated the future relationship with a client may be. “With the transition of wealth, people are going to see they didn’t plan appropriately for this.”

Bruce Kelly can be reached at [email protected].