Are the days of the small B-D numbered?

Pace of shutdowns is slowing, but one in 10 firms open in 2007 are now gone

May 1, 2012 @ 2:21 pm

By Bruce Kelly

The number of broker-dealers closing each month still far outpaces the opening of new firms, but the rate of broker-dealers shutting down is slowing, according to a new research report by the Compliance Department Inc., a consulting group.

Over the first three months of the year, 93 broker-dealers closed their doors, while over the first quarter of 2011, 137 shut down, according to the report. Likewise, fewer new firms opened during this year's first quarter than last. All in all, 44 new broker-dealers opened in the first quarter of the year. In the first three months of 2011, that number was 57.

The number of broker-dealers has declined steadily as rising legal and regulatory costs — plus fallout from a number of failed investment programs tied to real estate and private placements — have knocked many firms out of the industry.

According to the Financial Industry Regulatory Authority Inc., 4,428 broker-dealers were open in March, compared to 5,005 in 2007. That works out to an 11% decline in five years.

“I don't see an end to the steady downtick” of broker-dealers' closing, said David Alsup, national director of business development with the Compliance Department. “And I don't see an uptick for a while." He noted that a stricter regulatory environment — particularly for mom-and-pop firms — will lead to further consolidation in the industry. "You just can't be a two-man shop and hire a $70,000-per-year compliance officer and stay in business,” he said, adding that smaller firms that control a large amount of assets will fare better.

The average net loss of the number of broker-dealers is now 10 firms a month. That's down from the recent figure of 12 per month, he said.

The first quarter is an important measure in the industry because firms that intend to close will do so during that time to avoid paying annual fees assessed by Finra.

The slight abatement in the number of firms closing over the first three months of this year, when compared to the same period last year, was due to a couple of factors, he said. The economy has improved slightly, and trading volume for retail- oriented broker-dealers improved a little, but not a lot, he said. “That's across the board. Volume was better for equities, private placements and variable annuities,” Mr. Alsup said.

And the independent-broker-dealer industry is moving beyond the costly fallout of the “big three” of failed private placements: Medical Capital Holdings Inc., Provident Royalties LLC and DBSI Inc. Mr. Alsup said that about 50 broker-dealers that sold those products have shut their doors.

0
Comments

What do you think?

View comments

Recommended for you

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Featured video

INTV

Advisers should look beyond 529 plans for college planning

Editor Fred Gabriel talks to reporter Ryan Neal about how college-savings strategies are more important than ever as tuition costs soar.

Latest news & opinion

New ways to pay for college

Experts respond to real-life scenarios of people struggling to afford higher education.

How technology is reshaping the advice business

Artificial intelligence, Amazon and robo-advisers are some of the topics on the minds of tech experts.

Best- and worst-performing sector funds and ETFs this year

A rising tide may lift all ships, but a bull market doesn't lift all stock sectors. Here are the best- and worst-performing sectors this year, with the top and bottom fund in each sector.

Betterment slapped with $400,000 fine from Finra

Robo-adviser cited for violating customer protection rule and not maintaining its books and records correctly.

Supreme Court ruling on SEC judges unlikely to upend advice industry

But it could give rise to new hearings for some advisers who are already in litigation with the agency such as Dawn Bennett.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print