It’s not all doom and gloom for Independent Broker Dealers
July 19, 2018 | ARTICLE | BY KELLY LYNCH
Findings from recent annual surveys and rankings of independent broker dealers seem to have one theme in common—doom and gloom. The report from Financial Planning’s Annual FP50 Ranking, “Independent broker-dealers adapt to survive,” points to shrinking margins, increased regulatory oversight, growing competition and consolidation as key headwinds for IBDs.
Think Advisor’s 2018 President’s Poll revealed similar headwinds. When asked “what short-term issues keep you up at night?” nearly 36% of IBD presidents say improving and funding their technology and platforms. 31% said the need to do more and spend more on compliance and regulatory issues. And 20% said overall pressures tied to fee compression and industry consolidation.
Another trend that emerged was the shift from commission-based to fee-based revenue. This year’s Financial Planning survey marked the first ever that fee-based revenue at the top-50 independent broker-dealers exceeded commission-based revenue.
At Envision, we’ve observed the challenges and the changing IBD landscape for some time, which is precisely why we decided to enter the IBD market. Our goal in creating FundKeeper—a mutual fund trading, clearing and back-office administrative and operational service—was to ease some of the operational and compliance burdens many small and mid-sized IBDs face in servicing routine mutual fund and mutual fund managed accounts.
Not Either/Or – Efficiencies for Commission-Based AND Fee-Based Business
While many IBDs are experiencing a shift toward more fee-based business, there’s still a significant portion of commission-based business for which operational efficiencies are greatly needed. Without those efficiencies, commission-based business will consume too many resources and create more risk than reward—further exacerbating IBDs’ fee compression and compliance headaches. FundKeeper can solve some of these problems by “cleaning up” the commission-based mutual fund process via a single, automated and efficient platform. Further, using FundKeeper, IBDs and their reps have the option to pursue commission-based or fee-based funds. It doesn’t have to be either/or.
Efficiencies for Small and Mid-Sized IBDs
As consolidation continues, we’re mindful that small and mid-sized IBDs are especially in need of cost-saving efficiencies. With FundKeeper, IBDs can gain scale by consolidating their mutual fund customers onto a common, expense/fee-friendly platform. Through FundKeeper, small and mid-sized IBDs can also gain access to services once reserved for large firms only—features such as a responsive internet portal, real-time compliance review and an automated workflow.
New Revenue Sources
In light of shrinking margins and fee compression, IBDs need to find new ways to create operational and cost efficiencies. By moving an IBD’s mutual fund processing to FundKeeper, firms not only cut down on costs, but also create the potential for new topline revenue by tapping into the mutual fund’s shareholder servicing fees. Because the fund company no longer performs shareholder servicing, these fees can be available to the IBD.
While fee compression, consolidation and increased regulatory pressures aren’t likely to go away, it’s not all doom and gloom for IBDs. After all, necessity is the mother of invention. We envision more service providers stepping up to the plate to meet the needs and challenges of IBDs in this shifting landscape.