April 4, 2024
Louis Diamond Quoted
By Eric Rasmussen
There’s a concept in evolution called “punctuated equilibrium,” when long periods of stability and slow change are interrupted by cataclysms such as rising sea levels or mass extinction events that cause new species to branch off. Think of the meteor that brought about the decimation of the dinosaurs. Scientists now say that it also wiped out some competitive mammal groups, allowing our own mammalian forebears to bulk up and diversify, to be unleashed into the world in the widely variegated species we have today.
Louis Diamond, an advisor recruiter, says the trend he sees is that there are simply fewer broker-dealers recruiting now because of consolidation. “Many of them are being picked off by Osaic, Cetera, LPL and others. … This has put a big gap between the biggest [companies] and everyone else. It’s made it more difficult to compete with the scale players. But it’s also made it so there’s been a lot of forced movement and asset-in-motion opportunities for most firms.”
Higher interest rates have been a huge driver of broker-dealers’ profitability, allowing them to make money hand over fist on cash sweeps or attachment revenue (asset-based fees), as well as the money they are getting from asset managers to be on their platforms. That’s also helped the big firms when fees in other places are shrinking—the “race to zero,” as Diamond puts it, on admin fees charged to advisors and custody fees charged to clients.
“Especially for admin fees, the basis points that firms charge for clearing and custody, we’ve seen those fees go down,” Diamond says. “There are still some firms that charge an exorbitantly high admin fee,” he says, and those firms will likely be put on their heels in a recruiting war. “Others have lowered their fees considerably either because they are self-clearing like an LPL or they have just gotten better pricing with Fidelity and Pershing. … The B-Ds are able to push some of those savings onto the advisor,” Diamond says.
Advisors are often prone to inertia when it comes to switching broker-dealer affiliations. According to LPL and Raymond James, advisors still aren’t moving as much as they used to, though Diamond Consultants published a study earlier this year saying the opposite: that movement has picked up.
