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Industry Spotlight > Broker Dealers


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In the middle of one of the most challenging times in the industry’s history, how are independent broker/dealers coping? The leaders of 67 of the firms in our 16th annual Broker/Dealer Directory took the time to share their insights, hopes, and dreams in our third annual Presidents’ Poll, and as you might expect, they expressed the optimism that leaders often exhibit, while sharing the practical steps they’ve taken to help their firms–and their reps–to not only survive, but thrive in this new world. (Some of the poll takers were in fact presidents of their firms, others were CEOs or other top executives delegated to the task.)

The most telling responses, and perhaps the most surprising, came in a question about the fiduciary standard: 87% of the respondents said they expected such an RIA-like standard to be imposed on their representatives, which if it occurs would mark a sea-change in the independent B/D world and provide significant benefits to clients, not least to clear up confusion among consumers as to whom a rep represents. Another significant response came in the most-frequently cited short-term challenge for representatives, which might be called the Bernie Madoff effect: 71% picked “rebuilding trust with clients shaken by a poor-performing market and fraud.”

When asked about the biggest short-term challenge, 37% of the leaders of the 67 firms named the volatility of the markets, followed closely by a consequence of that volatility–31% cited as their biggest challenge reduced revenue as assets under management have shrunk.

In accompanying comments (while each signed their individual poll, to encourage candor we guaranteed anonymity), one leader wrote that the most important issue facing the investing public was “regaining confidence not only in investments but in institutions designed to protect them and provide unbiased information,” such as FINRA, the SEC, and the ratings agencies. Another president brought it closer to home, saying the biggest issue was “Reassuring clients that the financial industry is stable and solvent and their financial professionals are doing everything they can to assist them in preservation of capital and/or wealth building.”

That first president quoted above voiced a common answer to the question of the single most important issue facing independent broker/dealers: “Surviving substantially reduced margins and diminished sources of colatteral income, such as revenue sharing and interest on money market funds and cash balances.”

Next Stop, Tomorrow

As wise businesspeople, however, these leaders also looked ahead to the future, in which 36% said increasing margins would be their biggest challenge, while 29% cited the issue of recruiting high-producing reps who match their corporate culture.

Since these leaders are nothing without representatives, clients, and clients’ assets, the leaders’ choice for reps’ single biggest challenge over the the longer term was “offering more sophisticated solutions for clients” (33%) while finishing a close second at 30% was resolving the compensation issue as client assets shrink.

When asked what changes they had implemented in the home office in response to the crisis, more than a few said “nothing,” arguing that it was important to continue to conduct business as usual, or as one veteran B/D president put it, to exhibit “patience, rational expectations, and common sense.” Most, however, said they had cut costs and some had cut staff, while at least one used a new euphemism, saying the firm had “realigned” its budget. Perhaps not surprisingly, another frequently implemented home office change was the most-cited suggestion that the home office staff itself had made to representatives. What are they recommending their reps do during this time of trouble? Communicate, communicate, communicate. As the president of one large Midwestern-based B/D wrote, “Do not stop talking to current clients–communicate constantly, while positioning themselves to take advantage of those new clients that are looking for someone they can trust.”

More than one leader suggested that helping reps deal with their stress levels was a top priority, too, with that same insightful Midwesterner calling for a “larger focus on morale and mental health of our rep/advisors and our staff, while ensuring we are spending money in the ‘right’ areas related to growth and opportunity.”

The overwhelming majority of respondents believe in the continued viability of the independent broker/dealer model–97%–and as for which groups represent their interests best, 73% chose the Financial Services Institute, while only 16.7% picked FINRA.


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