Independent broker-dealers have successfully dealt with many business and regulatory challenges over the years, but as we sit at mid-year 2016, the latest regulatory challenge is its biggest business challenge. That’s not our editorial judgment — it’s how the leaders of 58 independent broker-dealers feel.
This is the sixth year that we’ve surveyed the presidents of independent BDs on their biggest challenges and opportunities in the same month we gather data from IBDs (data from 67 broker-dealers was received, including poll responses from 58 BD presidents) on the state of their businesses (see highlights of our annual Broker-Dealer Reference Guide). This year, we added three questions about the DOL’s redefinition of fiduciary under ERISA, and the BD presidents’ responses were illuminating (the poll was sent, and the great majority of those 58 responded, before the DOL rule was released on April 6).
As seen in the charts below, nearly 70% said they had already invested significantly to prepare for the rule, nearly a third said they were “actively monitoring” the rule, while only 1.7% — that’s one broker-dealer president — said they were taking a “wait and see” approach to the DOL rule. That makes particular sense when you consider how the presidents responded to other questions specifically on the DOL rule and on their overall business challenges in the short and long term.
Almost all — 96.5% — respondents said the rule will either “significantly change the industry,” with more consolidation in the ranks “likely,” or will have a big effect on their costs, though they think most IBDs will survive the rule. The solidarity on the rule’s impact disappeared when asked how it would affect their reps and their recruiting, and even their overall business model. While few expect to lose many reps to the RIA-only space, one-third of the presidents said they expect their businesses will become even more fee-based, while the same number of presidents said they expect to either spend more on recruiting or to lose some reps.
The rule’s significance became even greater when the answers to the standard questions in our poll are revealed. What do they see as the biggest short-term challenge to their firms? Nearly 83% said the DOL rule. What do they see as the biggest long-term challenge to their firms? Fifty-six percent said the DOL rule, and if you include the option “dealing with increased compliance costs,” that overall percentage rises to 83.6%. Even when asked what their reps’ biggest short-term challenge would be, 36% of the presidents wrote in that it would be dealing with the DOL rule.