How Mergers and Acquisitions are Threatening Independence

Concerned about broker/dealer consolidations and how they may be an unavoidable consequence of the times? Remember, it does come at a cost to advisors and investors.

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    How Mergers and Acquisitions are Threatening Independence

    How Mergers and Acquisitions are Threatening Independence

    What Broker/Dealer Consolidations Mean for You

    The number of independent broker/dealers (IBDs) has declined 28 percent since 2007, to just 847 firms.1 Broker/dealer consolidation has occurred for a variety of reasons: falling margins, increasing regulatory burdens and insufficient scale to compete. Its biggest consequence may be the threat it poses to advisor independence.

    In light of the challenges facing IBDs, it shouldn’t be surprising that larger broker/dealers are making acquisitions to grow their advisor base quickly and develop operating efficiencies by scaling up in size, or that smaller and medium-size broker/dealers are merging in an effort to simply survive and compete.

    IBD Mergers and Acquisitions Come at a Cost

    The pressures driving the IBD consolidations are as powerful as they are inexorable. While consolidations may be an unavoidable consequence of the times, it does come at a cost to advisors and investors.

    Depending upon the acquirer, advisors of an acquired firm may find that the change in ownership brings a clash in cultures, creates a widening gap between “the field” and “headquarters management,” results in less robust product availability, and introduces a business and compensation model that does not fit with how the advisor does his or her business.

    The emergence of IBDs in the 1980s was a response to advisors’ desire to gain a measure of freedom from the sales production dictates of the then-predominant national wirehouses. Sadly, today’s consolidation trend within the independent channel runs the risk of returning to those days of a more restrictive, centrally-directed broker/dealer from which IBDs so long serve as a refuge for advisors.

    IBD consolidations may present the greatest risk to the small one- or two-person, one-office advisors as the number of IBDs willing to serve this part of the marketplace dwindles.

    If there is one positive to come from this consolidation trend, it is this—remaining IBDs will have a greater incentive to create real value for advisors, rather than relying on a more passive intermediary role that some may have played in the past.

    For advisors affected by a merger or acquisition, they will need to examine whether the acquiring broker/dealer represents a proper fit for their practice and their clients, and whether better alternative IBDs may represent a more suitable partner for growing and sustaining their practices in the years ahead.



    See referenced disclosure (2) at 



    President of American Portfolios Financial Services, Inc. 
    631.439.4600, ext. 285 


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