The Third-Party Broker-Dealer Model

A growing number of banks and credit unions are partnering with third-party broker-dealers (also known as third-party marketers) such as LPL Financial Institution Services and Raymond James Financial Institutions Division. Industry consulting group Kehrer Bielan Research and Consulting estimate that over 2,900 financial institutions are offering wealth management services. Their research suggests that 98.6% offer investment services through third-party broker-dealers. 

With a third-party broker-dealer partnership, depository institutions can offer investment services to their customers with less overhead and headache. This article provides an overview of the third-party broker-dealer model, a summary of advantages and disadvantages, and a list of the current providers.

Third-Party Broker-Dealers Explained

Depository institutions leverage many third parties or vendors, including broker-dealers. In particular, broker-dealers can provide retail non-deposit investment products for bank/credit union customers. Rather than running their investment services programs internally, banks and credit unions engage third-party broker-dealers to run their brokerage and wealth management units for them. A crude but helpful analogy to understanding the third-party broker-dealer model is a comparison to leasing vs. buying.

Advantages and Disadvantages

A bank or credit union that chooses to outsource its investment services program to a third-party broker-dealer can leverage resources and crucial functions, including supervision and compliance, operations, client communications, data management, and technology.

This arrangement’s main disadvantage is the one-size-fits-all approach, a common challenge when outsourcing any service. In contrast, an internalized broker-dealer is focused entirely on the firm’s business and tailors its program to the institution’s specific needs. 

Listing of Third-Party Broker-Dealers

  • Cetera Advisor Networks
  • Cetera Investment Services 
  • CUNA Brokerage Services
  • CUSO Financial/Sorrento
  • Infinex Financial Group
  • LPL Financial LLC
  • Raymond James
  • Securities America

How Terrapin Technologies Can Help

For some institutions, the solutions provided by third-party broker-dealers may not meet all of their needs, especially for programs with complex incentive compensation models. At Terrapin Technologies, not only do we serve large bank-owned broker-dealers, but we also serve small to mid-sized institutions that partner with third-party broker-dealers. We offer a centralized and automated system for a firm’s back-office and accounting. Our reporting solutions bring efficiency and insights to branch revenue, advisor performance, and referral tracking.