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Independent Broker Dealers Ramping Up The Game

The independent broker dealer space has all the elements of a high-adventure video game this year, and only the most advanced players may be up for the challenge.

Anticipating and navigating regulations is growing more daunting while shrewder strategies are needed to prevent profits from imploding under mounting costs. Broker dealers must also have quicker reflexes to gobble up and retain financial advisors who can help score revenues for the firms.

Fewer independent broker dealers are present for this latest round. Finra counted 4,289 member firms in December 2012, versus 4,456 in 2011. Larry Papike, president of Cross-Search, a Jamul, Calif.-based independent broker dealer advisor and executive placement firm, expects more smaller firms to seek exit strategies and alliances amid rising compliance costs, an aging advisor population and stiffening competition to attract younger advisors. “I think consolidation is inevitable,” he says.

Independent broker dealers are trying to squeeze out net profit margins in the 5% to 8% range, says Papike. If new regulations require firms to add technology and compliance people, they will likely have to eat these costs because it’s hard to cut advisors’ pay without losing them, says Jodie Papike, an executive vice president at Cross-Search. The majority of firms are providing advisors with 85% to 91% payouts, according to Financial Advisor’s 2013 broker dealer Ranking survey.

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