Cambridge Investment Research bags mid-sized broker-dealer

Broker Dealer Financial Services, an IBD with 150 reps and advisers, and $3.5 billion in assets, will become a Cambridge OSJ

Aug 20, 2018 @ 5:18 pm

By Bruce Kelly

The consolidation of the brokerage industry continues, and in the latest deal Cambridge Investment Research Inc., one of the largest independent contractor firms, said on Monday it had acquired Broker Dealer Financial Services Corp., a mid-sized firm with about 150 reps and advisers, $3.5 billion in assets and $20 million in annual revenues.

Broker Dealer Financial Services, or BDFS, will become an enterprise branch, called a "super OSJ" for office of supervisory jurisdiction, of Cambridge, according to a letter sent Monday to Cambridge's 3,956 reps and advisers from the firm's senior management. Both firms are based in Iowa.

Terms of the deal were not disclosed.

Independent brokers have seen margins compress steadily since the credit crisis, as record-low interest rates ate into their bottom lines. New regulations have hampered the sale of high commission products such as nontraded real estate investment trusts and variable annuities, further increasing the pressure on firm finances.

The number of IBDs has declined 28%, with 904 open for business in 2015, compared to 1,255 such firms that were up and running in 2005, according to a report last year from Fidelity Clearing & Custody Solutions. And with increased regulation pressuring profits, broker-dealer operating margins dropped from 12% in 2006 to just 3% in 2016, according to the report.

Eric Schwartz, the founder and executive chairman of the board at Cambridge, told InvestmentNews last year that Cambridge had been taking calls from such small or mid-sized firms, which were looking to sell due to rising costs and the need to comply with regulations such as the Department of Labor's fiduciary rule, which is now defunct.

Still, rising compliance costs are making life difficult for smaller broker-dealers, noted Jodie Papike, president of Cross-Search, a recruiting firm.

"It continues to be an issue for a firm that size to deal with regulation and compliance and have such small margins," said Ms. Papike. "The need for scale continues to drive this. Broker-dealers are looking to offload those costs. It's difficult for the small or mid-sized broker-dealers to deal with costs associated with compliance."

"I thought the geography made sense, with many BDFS advisers concentrated in part of the state where Cambridge is," said Jonathan Henschen, an industry recruiter.

Founded in 1979, BDFS has a business and revenue mix that tilts towards transactions rather than fees, the opposite of Cambridge. About two-thirds of BDFS' revenue comes from transactions, or advisers selling products, according to the letter from Cambridge to its advisers. In comparison, 56.7% of Cambridge's total revenue last year of $811.4 million came from fees, according to InvestmentNews data.

"The reps at BDFS have tended to do more stocks and bonds and alternative investments," which generate commissions, Mr. Henschen noted. "Cambridge likes fee-based business. So, the product mix might be an issue."

The deal is expected to close by the end of October. The new super OSJ branch will be led by Christina DeShaw, president and CEO of BDFS and one of its current owners.


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


How InvestmentNews picks its Women to Watch winners

The process is laborious and exacting, but well worth it. The end result each year is an impressive group of women in the advice industry from whom others can draw inspiration.

Latest news & opinion

Some good news about female recruitment in financial advice

Each of four core advisory positions tracked in InvestmentNews' benchmarking study has seen an uptick in women entrants.

10 ETFs that are up more than 35% this year

Amid the stock market carnage, there are still some funds posting big gains.

10 biggest HSA providers rated

Morningstar rated the largest plan providers as investment and spending vehicles.

Morningstar: DOL fiduciary rule reduces inflows to mutual funds with high loads

With the measure's demise, will the SEC's advice reform sustain the momentum?

6 tax strategies for year-end planning

How to help clients maximize their wealth using specific tax strategies before the end of the year.


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 It'll help us continue to serve you.

Yes, show me how to whitelist

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


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print