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M&A Activity Heats up for Independent Broker-Dealers, According to Fidelity®

Fidelity® M&A Report Shows $136 Billion Changes Hands Year-to-Date as IBDs Move to Mitigate Thinning Margins and Increase Advisor Productivity

New Report Looks at How Fewer, but Bigger M&A Transactions are Altering the IBD Channel

BOSTON--(BUSINESS WIRE)-- Fidelity Clearing & Custody Solutions, the division of Fidelity Investments that provides clearing and custody to broker-dealer firms, registered investment advisors (RIAs), family offices, retirement recordkeepers and banks, today released the latest report in its Fidelity Wealth Management M&A Series, Insights from Independent Broker-Dealers (IBDs), which found that year-to-date, $136 billion in assets changed hands among IBDs as a result of five deals. This compares to the $80 billion spread across 82 deals among RIAs during the same time period. The report looks at how fewer, but bigger M&A transactions are altering the future of the IBD channel.

According to the report, Large IBD Acquirers – defined as broker-dealer firms with $10 billion+ in assets – drove the five IBD deals to-date and are helping to shape the IBD channel into a concentration of a small number of large firms. In fact, the top ten IBD firms in the marketplace now manage 65 percent of all broker-dealer assets and 48 percent of all broker-dealer advisors.1

“There are many emerging multi-billion dollar RIA firms, but they are still far behind the significant scale of the largest independent broker-dealers, which have substantial assets and advisor bases,” said Scott Slater, vice president, practice management and consulting, Fidelity Clearing & Custody Solutions. “So, while we are seeing fewer IBD deals compared to RIA deals, those that are taking place are significant, both in size and in how they are creating innovative business options and platforms for advisors.”

According to the report, IBD M&A activity is heating up as a result of major changes taking place in the channel. Costs are rising as broker-dealers make investments in technology, advisor education and oversight to comply with regulations. And, lower advisor productivity is straining bottom lines – average assets per IBD advisor are $32.9 million, whereas advisors at independent RIAs are twice as productive at $66.6 million.2

Drawing upon perspectives of members of the Fidelity M&A Leaders Forum, including extensive interviews with executives at Large IBD Acquirers, the report examines how M&A is providing IBDs an avenue to address these market pressures to increase size, productivity and revenue potential. M&A is helping IBDs:

1. Refine their growth strategies. The report found that two models are emerging in today’s IBD landscape – large firms with scale and focused firms with a distinct value proposition to serve a niche.

2. Balance size and culture. Post-acquisition, large IBD Acquirers are standardizing practices and procedures to improve efficiencies, while also maintaining advisor independence and choice. The report found that the large firms are focused on advisor engagement, management continuity and productivity improvements.

3. Strengthen value propositions. Large IBD Acquirers are creating additional value to appeal to firms looking to sell and to retain advisors post-acquisition through four key strategies:

  • Leverage technology as a strategic advantage: The race for technology has IBDs investing in their platforms to improve the advisor and client experience.
  • Reinforce advisor independence: A range of operating models supporting both fee- and commission-based business provides IBD advisors with the choices they need to stay in the channel.
  • Ease the transition: Taking lessons learned from the past, firms help retain advisors by creating a positive first impression with a smooth onboarding process.
  • Help acquired advisors grow their businesses: Investing to help advisors expand their books of business strengthens ties with the home office, while creating more consistency in productivity levels across the firm.

4. Mitigate operating and regulatory risk. Reducing risk is top-of-mind for Large IBD Acquirers as they evaluate acquisition targets and the advisors affiliated with them. The report found that many Large IBD Acquirers are experienced buyers with well-defined strategies and thorough vetting processes, and they will decline deals that pose potential risks to their culture, sales record and firm value.

For more information, read Insights from Independent Broker-Dealers, the latest report from the Fidelity Wealth Management M&A series. Previous reports in this series provide insight into M&A activity in the RIA segment, specifically profiling RIA Strategic Acquirers and Large RIA Acquirers, and into month-to-month M&A transactions for all advisor segments.

About Fidelity Investments
Fidelity’s mission is to inspire better futures and deliver better outcomes for the customers and businesses we serve. With assets under administration of $6.4 trillion, including managed assets of $2.3 trillion as of August 31, 2017, we focus on meeting the unique needs of a diverse set of customers: helping more than 26 million people invest their own life savings, 23,000 businesses manage employee benefit programs, as well as providing more than 12,500 financial advisory firms with investment and technology solutions to invest their own clients’ money. Privately held for 70 years, Fidelity employs more than 40,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.

All statistics in this news release are from the Fidelity’s 2017 M&A Report, Insights from Independent Broker-Dealers, unless otherwise indicated herein.
The content provided herein is general in nature and is for informational purposes only. This information is not individualized and is not intended to serve as the primary or sole basis for your decisions as there may be other factors you should consider.
The registered trademarks and service marks appearing herein are the property of FMR LLC.
Fidelity Clearing & Custody Solutions provides clearing, custody or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC. Members NYSE, SIPC.
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1 U.S. Broker/Dealer Marketplace 2016, Cerulli Associates
2 The Cerulli Report, U.S. Advisor Metrics 2016, Cerulli Associates.

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Source: Fidelity Investments