Broker/Dealer Industry in Good Shape

FSI-sponsored survey shows growth in independent B/D market

The independent broker/dealer business model is quite healthy, growing in revenue, profits, and number of reps over the 10-year history of the Broker/Dealer Financial Performance Study conducted by Moss Adams for the Financial Services Institute. The most recent version of the study--which was conducted in 2004 and its findings released on August 19--surveyed 49 broker/dealers with a total of 40,000 advisors who service more than 1.2 million clients; the average B/D in the survey had 817 affiliated advisors. The average B/D in the survey has grown about 3.5 times in revenue from 1995 ($27.9 million) to $93.5 million in the 2005 survey, and over the past two years alone has grown an average 30%. The average practice in the survey had nearly $100,000 in revenue in 2005, compared to $55,000 in total revenue in 1999. The average operating profit margin improved from a negative 1.4% in 2003 to a positive 1.4% in 2004, though margins are still far removed from the high-water mark of 3.4% posted in 1998. One of the financial surprises in the survey is that the gross margins of B/Ds have declined as average revenue per advisor has steadily increased over the past seven years, from $54,983 in 1998 to $84,517 in 2004. The survey points out that those broker/dealers "that put significant focus and resources towards transitioning to fees have achieved the best results."

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