BNY Mellon's Pershing Study: Broker-Dealers Need to Rethink Their Strategies In Order To Attract and Retain Top Clients

Ensemble teams are critical clients of broker-dealers, bringing revenue, competitiveness and longevity

JERSEY CITY, N.J. – To remain competitive in today’s financial advice industry, broker-dealers must recalibrate their relationships with their advisors, according to a whitepaper released today by Pershing LLC, a BNY Mellon company. The report, Why Teams Are the Client of the Future for Broker-Dealers, points out that changes in the advisor-client of the modern broker-dealer present different challenges and opportunities that broker-dealers must navigate. These changes provide broker-dealers with an opportunity to rethink their overall strategies to attract and retain top clients.

According to the report, the top client of today’s successful broker-dealer is not a “rep” or even an “advisor” but an ensemble, which is a firm or a team of multiple professionals that service and manage client relationships. Ensemble teams are already controlling a significant percentage of broker-dealer revenue, growing faster than the average practice, servicing a higher-net-worth client base and offering better career growth opportunities. Most importantly, ensembles are net acquirers. They are acting as a successor for many of the smaller solo practices and are likely to emerge as the ultimate consolidators of the industry.

“Broker-dealers have formed traditional affiliation models around individuals, which don’t necessarily work as well for ensemble firms,” said Jim Crowley, chief relationship officer and managing director at Pershing. “However, broker-dealers that recognize and understand that their top client is a team rather than an individual will not only strengthen existing relationships with these clients, but will also position themselves for organic growth and strategic acquisitions.”

While ensembles are valuable to broker-dealers, they are also at risk of being lost as clients. Many larger teams are departing broker-dealer firms to become independent. These advisors, known as breakaway advisors, are moving to a registered investment advisor (RIA) or hybrid business model. Industry changes continue to increase the possibility that successful teams will part ways with broker-dealers.

Despite the challenges, broker-dealers can successfully recruit, retain, and work with ensembles by better understanding how they work and by restructuring affiliation models. Pershing’s report highlights actionable ways for broker-dealers to accomplish this, including:

• Restructure relationship management: Broker-dealers should maintain a relationship with multiple individuals within the ensemble team, including the CEO/managing partner/leader, COO/operations leader, advisors and next generation of successors.
• Focus on holistic financial advice: Since more than 70 percent of a large advisory firm’s revenue comes from advisory fees, broker-dealers should seek to reframe the relationship with the firm as one of offering a spectrum of financial advice and serving in a more custodial capacity to demonstrate the greatest value to the advisory team. This includes understanding the investment philosophy of the ensemble team, knowing the tools advisors need to run their business efficiently, integrating technologies and support, offering holistic planning, and building confidence and trust through open communication.
• Understand the ensemble team’s vision and business strategy: To be a good business partner, broker-dealers need to ask advisors about where they envision the future of the ensemble team in five to 10 years. Ideally, the vision should be one where there is collaboration with the broker-dealer at some level. The more the two firms work on the strategy together, the longer and stronger the relationship will be.
• Think in terms of outsourcing: One of the most productive avenues for strategic partnership is outsourcing. Activities that advisors can outsource to their broker-dealer include: compliance, technology, due diligence, back-office operations and practice management.
• Give ensemble teams examples of success and thought leadership that they can study and replicate: One of the primary reasons advisory firms leave broker-dealers and become RIAs is that they perceive it to be the path followed by large and successful businesses. To be successful, broker-dealers need to create examples of the collective intellectual capital that can be leveraged to demonstrate expertise and show value to investors.
• Create and foster a culture: If the broker-dealer and advisory firm share the same values and goals, the relationship will be strong, durable and successful. To continue to foster that culture, broker-dealers need to regularly come together with advisors in a constructive dialogue about their business strategies and expectations of each other.

To obtain a copy of Pershing’s whitepaper Why Teams Are the Client of the Future for Broker-Dealers, please visit www.pershing.com/ourthinking.

About BNY Mellon's Pershing

BNY Mellon’s Pershing and its affiliates provide advisors, broker-dealers, family offices, hedge fund and ’40 Act fund managers, registered investment advisor firms and wealth managers with a broad suite of global financial business solutions. Many of the world’s most sophisticated and successful financial services firms rely on Pershing for clearing and custody, investment and retirement solutions, technology, enterprise data management, trading services, prime brokerage, managed account technology and operations and business consulting. Pershing helps clients improve profitability and drive growth, create capacity and efficiency, attract and retain talent, and manage risk and regulation. With a network of offices worldwide, Pershing provides business-to-business solutions to clients representing more than seven million investor accounts globally. Pershing LLC (member FINRA, NYSE, SIPC) is a BNY Mellon company. Professionally advised managed accounts are offered through its affiliate, Lockwood Advisors, Inc., which is an investment adviser registered in the United States under the Investment Advisers Act of 1940. Additional information is available on pershing.com, or follow us on Twitter @Pershing.

About BNY Mellon

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment and wealth management and investment services in 35 countries. As of Dec. 31, 2020, BNY Mellon had $41.1 trillion in assets under custody and/or administration, and $2.2 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.