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Why Insurance-Owned IBDs Will Still Be Big Players in Advice Market

March 27, 2018

The financial advice industry has changed a lot in its transition to the fiduciary era, but that doesn’t mean the insurance company-owned broker-dealer model is on the way out, Chris Flint writes on WealthManagement.com.

The ownership structure isn’t important, according to Flint, president and CEO of indie broker-dealer and RIA ProEquities, Inc. What matters is the firm’s ability to deliver solid service to its clients, he writes.

Even independent firms, for instance, offer some proprietary products or services, such as in-house constructed model portfolios or investment banking services, according to Flint. The mere presence of proprietary solutions doesn’t automatically affect a company’s potential to deliver conflict-free advice, and many insurer-owned broker-dealers already know this, he writes.

In fact, broker-dealers that have started out owned by insurance firms have a leg up when it comes to their understanding of long-term portfolio construction and risk management, according to Flint. Putting these insights to work can help such firms expand their ability to deliver holistic financial planning services that include contingency planning too, he writes. Risk management capabilities add value to insurer-owned broker-dealers compared to their peers, according to Flint.

On the other hand, not all insurance-owned independent broker dealers will have the same chance at success in the fiduciary era, he writes.

Advice firms — regardless of who owns them — that rely on commissions for more than 60% of their revenue will face significant challenges while those where at least 40% of revenue comes from fee-based services are well-positioned, according to Flint.

More broadly, it’s the firms whose owners have resources, be they private equity outfits or product manufacturers, that will have an advantage over independent standalone broker-dealers, he writes.

By Alex Padalka