The Independent Broker-Dealer (IBD) channel has long taken a backseat to the “wirehouses” in terms of intermediary distribution focus. However, these firms remain powerhouses in the mutual fund market, are leading in active ETF adoption, and may eventually become growth engines for the managed account and evergreen alternatives markets. Asset managers that haven’t looked at the channel recently may notice some differences.
Distributors (like Cetera, LPL, and Osaic) in this channel have historically offered uneven opportunities for asset managers, and the advisors have been challenging to approach at scale. However, our Distribution Solutions team has increasingly heard from many asset management clients that advisors in the channel are more receptive. These comments include “they’re answering the phone now” and “they’re paying attention to the recommended list.”
The upshot for asset managers is that this channel may be underserved, likely due to the historical challenges. Our most recent Advisor Insights research, conducted in association with Horsesmouth, indicates that advisors in the IBD channel receive requests for meetings from 25% fewer asset managers than those in the Employee BD channel (primarily wirehouses). About the same number of those requests result in in-person meetings.
IBD Advisors Take the Same Percentage of Meetings, but Get Asked Less
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Average number over the last 12 months
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Employee BD
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Independent BD
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Independent RIA
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Requests for meetings from salespeople at different asset managers
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34.3
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25.6
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18.3
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In-person meetings with salespeople from different asset managers
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8.0
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5.5
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4.3
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Percentage of outreach resulting in in-person meetings
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23%
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21%
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23%
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IBD advisors report that a smaller percentage of those meetings result in tangible value when compared to the Employee BD channel, while the Independent RIA channels found value in the fewest number of meetings. The cause of advisors typically not finding value is that the asset manager doesn’t understand their specific issues or what their investment process looks like.
These statistics reflect key attributes of how distribution teams approach each channel.
In the Employee BD channel, dominated by wirehouse and regional broker-dealer firms, advisors are more uniform in their platform use, work within large branch offices and have branch managers that serve as a filter between them and asset managers.
In contrast, the IBD channel introduces challenges from a wider variety of advisor business models and fewer points of influence (like branch managers in the Employee BD channel). These advisors also have a reputation for being more product-centric in their investment process than solutions-centric, with the latter being the area where most asset managers are providing value.
Green Shoots in the Green Field
The ability to leverage centers of influence and to provide value around solutions in the IBD channel may be changing. Delivering financial advice is becoming more competitive and increasingly centered on tax-aware investing. IBD advisors will need to move in this direction, which is where asset managers will play a greater role. There are two developments to note:
- The IBD channel is a green field for managed accounts and evergreen alternatives, particularly because the technology provided by broker-dealers and fintechs is improving the integration of these product structures into advisor workflows. One of the best solutions for clients in need of tax-smart investing is direct indexing, but the ability to implement these at scale is notoriously challenging—particularly in the IBD channel. However, an executive from an IBD firm said at the MMI Annual Conference in early October that the use of direct-indexing has materially increased over the last few months.
- Office of Supervisory Jurisdiction (OSJ) involvement at some of the large IBDs has become more formalized and focused on the business success of the advisors they oversee. On one hand, this should push advisors to working more with asset managers to help with scalable solutions. On the other hand, it provides asset managers with a center of influence who can help direct them to the advisors they should be speaking with, given their range of solutions.
Waking Up to the IBD Channel
Asset managers should not sleep on the IBD channel, but also cannot sleepwalk through their approach. There is still much nuance to understand about how the channel uses models and TAMPs/fintech firms. Some advisors will hold no opportunity.
Data certainly helps with prioritizing outreach, as does insight from national accounts teams. Finding the intersection of product opportunity and access will remain more challenging than in the wirehouse channel, so expectations should be set accordingly.
Momentum around product expansion and more leverage points (like OSJs and home office recommendations) should be encouraging for asset managers. The channel holds significant opportunity in both mutual funds and products like ETFs, managed accounts and alternatives, but asset managers will need skill and patience to tap into the growth.
SS&C's Distribution Solutions team works with our asset management clients to help shape their data-driven distribution strategy and execute on insights and opportunities. To learn more about how we can help your firm, read about our offerings and explore our research.
