According to Sanjiv Mirchandani of Fidelity’s National Financial, 2013 “was a good year for the retail brokerage business,” as the retail investor returned to the risk-based markets — as they normally do 18 months into a bull market, he said.
“As our clients’ results improved, so did ours,” said the clearing firm’s president, even without “any short-term interest rate help.”
Looking at the broker-dealer business in toto, Mirchandani said in an interview Tuesday at the FSI OneVoice conference that “the weak players have been winnowed out” of the BD business, in part because “the regulators have been busy,” leading to increased consolidation pressures in the industry.
“Given halfway decent markets” in 2014, he said, “there’s a tremendous opportunity this year” for the independent BD business, though he remains worried that “investors’ underlying skitttishness might send them back” out of the market.
He warned of other dark clouds on the horizon for BDs.
“This can’t be a business where only baby boomer advisors serve boomer clients,” he said, though he cited some BDs that are bucking the trend, such as Cambridge Investment Research, led by that BD’s president, Amy Webber, in Cambridge’s next-gen advisor efforts.
The IBD model, he said, has been built on firms recruiting advisors with existing books, but the traditional avenues of training advisors have largely disappeared. But some of the “discount brokers,” such as Fidelity itself, and firms like Edward Jones, are hiring and training younger people.
As for consolidation in the broker-dealer space, he said that “to some extent it’s inevitable: run the math.” But while some firms “are looking for an exit plan,” he suggested that the “real winners will be BDs who can run a business well,” producing organic growth from their existing rep force, and not those who “just buy a business.”