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Industry Spotlight > Broker Dealers


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As part of this, our annual exploration of the independent broker/dealer universe, Investment Advisor polled the presidents of the independent B/Ds participating in our annual broker/dealer survey, asking them to disclose the daily challenges their firms face, and rate a series of issues based on their importance to their businesses and their advisors.

For the 58 leaders of the broker/dealers who graciously took the time to answer our Presidents’ Poll, the consensus most challenging issue over the next 18 months will likely be a “misguided regulatory/legislative agenda.” Over 70% of respondents selected this as the biggest potential problem for their firms.

In the same vein, nearly 37% felt that a higher-tax/greater-compliance atmosphere would continue to challenge them over the next three to five years and beyond. With the Obama Administration focused on policing past abuses and looking for legislation to enforce new rules, that’s not a spurious concern.

When asked what they considered the most important issue facing the independent B/D industry itself, almost 40% cited regulation in one way or another. An additional group mentioned its corollary, compliance. We offered confidentiality to all our respondents, which perhaps gave one president the freedom to cite Washington’s “socialist agenda” as the top worry for the industry.

As an outgrowth of the regulatory issue, when asked about the most challenging issues for individual advisors over the short term, over 30% of the presidents cited “Rebuilding trust with current clients.” Interestingly, nearly as many (over 29%) said that the most important issue facing the investing public was trust of the industry and/or the advisor.

Yet less than 7% felt that was the most important issue facing the industry. Slightly more, 9%, considered regular/increased client communication as the single most important change made in the home office. And just over 10% plan to invest more money and effort in client communications.

Who Speaks for Them?

Speaking of trust, there’s also a massive disconnect between independent B/Ds and FINRA, which was felt by only 9% of respondents to be best poised to advance their point of view to legislators in the nation’s capital. The presidents’ top choice for that post was FSI, the Financial Services Institute.

In fact, there are some distinctly disturbing rumblings about FINRA, with talk that its ads in Washington publications are specifically targeted toward legislators to present itself as an “enforcer” agency, the watchdog against rogue firms; there are also charges that its attitude in cases of compliance is both arrogant and uncompromising.

At least one respondent who agreed to reveal his name doesn’t feel that way, however. Mark Schlafly, president and CEO of FSC Securities, Inc. in Atlanta, cites legislators’ attitudes toward FINRA, calling it “the current regulatory body that many of our lawmakers look to for guidance on the securities industry.” Working closely with regulatory bodies, he adds, “to best serve the public and our clients . . . is a win for all involved.”

Returning to the question of the most important issue facing the independent B/D industry, a cogent answer came from Art Grant, president of Cadaret, Grant, who paraphrased from Rudyard Kipling’s poem “If” in his reply: “Staying calm when all about us are losing their heads.” Grant says it’s important for folks to “deal with things on a calm, unemotional level. We’ve been through it, and know how to get through it,” he reminds his peers. While not downplaying the importance of emotions, he says, and admitting he is not a fan of recession or market volatility, he says simply, “We’ll survive.”

Another area of concern to Grant is overreaching for yield. Clients who choose investments that hold out the promise of a high rate of return may not understand the risks inherent in those investments, he says, but “when money markets have one tenth of one percent [in interest to offer]” those people look for higher returns, “ and we have to be the ones to say that’s too risky. We have to be willing to do that, but also to find the best possible alternatives [for them], and I think that’s going to be a real challenge over the next three to five years.”

The State of the Independent Broker/Dealer Universe

The financial crisis gave independent B/Ds a drubbing from which they’ve yet fo fully recover, according to the IA 2010 broker/dealer survey. See additional Presidents’ Poll findings, and our annual B/D directory here.

Broker/Dealer of the Year voting will be conducted online from June 1 to July 1, 2010. Complete information on eligilibity and to vote go here.

Marlene Y. Satter is a freelance business writer and former IA editor who can be reached at [email protected].


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