Regional Broker Dealers Comeback in a Growing Market

Regional broker dealers are making a comeback in a growing market. According to recent data, the number of registered broker dealers in the US has increased by 15% over the past year.

This growth is largely driven by the increasing demand for alternative investment products and services. Regional broker dealers are well-positioned to capitalize on this trend, offering a more personalized and local approach to investment services.

In fact, a survey of investors found that 75% prefer to work with a local broker dealer for their investment needs. This preference is likely due to the perceived trust and familiarity that comes with working with a local business.

Regional broker dealers are also benefiting from the rise of technology, which has reduced costs and increased efficiency in the industry.

Broker services are a crucial part of regional broker dealers' offerings. They provide a range of services to help clients achieve their financial goals.

One key service is trade execution, where brokers act as intermediaries between buyers and sellers to facilitate transactions. This can be done electronically or over the phone.

Regional broker dealers often have a strong network of relationships with other firms and market participants, which enables them to provide research and analysis to their clients. This helps clients make informed investment decisions.

These services are usually provided at a lower cost than larger, national broker dealers, making regional broker dealers an attractive option for smaller investors.

Broker-dealers are coming back in a big way, with many firms experiencing a resurgence in business and revenue. This is largely due to the increasing demand for brokerage services and the growing need for investment advice.

In 2020, the number of registered broker-dealers in the US increased by 10% compared to the previous year. This growth is expected to continue as more investors turn to brokerage services for their financial needs.

With the rise of online brokerage platforms, broker-dealers are now able to offer more efficient and cost-effective services to their clients. This has helped to increase their competitiveness in the market and attract more business.

According to the Financial Industry Regulatory Authority (FINRA), the average revenue per employee (ARPE) for broker-dealers increased by 15% in 2020 compared to the previous year. This suggests that broker-dealers are not only growing in terms of the number of firms but also in terms of their profitability.

As a result of this growth, many broker-dealers are now investing in technology and hiring more staff to meet the increasing demand for their services. This is helping to drive innovation and improve the overall quality of brokerage services.

In the world of financial services, two professionals often get lumped together: brokers and advisors. However, their services, compensation, and care standards are distinct.

Brokers typically focus on selling specific financial products, such as insurance policies, mutual funds, or securities, to clients. They often earn commissions from these sales.

Advisors, on the other hand, provide comprehensive financial planning and guidance to clients, including investment advice, retirement planning, and estate planning. Advisors may charge fees for their services.

The Financial Industry Regulatory Authority (FINRA) regulates brokers, holding them to strict standards for sales practices and product suitability. Brokers must also disclose their compensation to clients.

Advisors, however, are regulated by the Securities and Exchange Commission (SEC) and the Financial Planning Association (FPA), which emphasizes their fiduciary duty to act in the best interest of clients. Advisors must also disclose their fees and compensation.

Ultimately, the choice between a broker and an advisor depends on your specific financial needs and goals.

Regional broker dealers tend to focus on specific geographic areas, often mirroring the regions in which their parent companies or affiliates operate.

Many regional broker dealers have a strong presence in the southeastern United States, where they can leverage relationships with local investors and businesses.

Their geographic focus allows them to develop a deep understanding of the local market and tailor their services accordingly.

Over the last decade, there's been a significant shift in the way wirehouses and national/regional broker-dealers approach client service.

Clients are now more focused on financial planning than on investment advice. Ten years ago, clients were trying to figure out what the next best thing was after the recession, but now they're recognizing the value of working with an advisor and asking for financial planning.

The shift has gone from how much return can we generate to what's the best investment to meet your goals. Clients are now more concerned with how much risk they need to take to achieve their goals, whether it's retirement, education, or buying a house.

Financial planning provides the connective tissue between all services, enabling advisors to tap various parts of their business, such as lending, investment advice, and banking, depending on the client's goal.

Firms are devoting more resources to planning, with some even launching new financial planning platforms. For example, Kestra Financial recently hired Jen Hollers, CFP, as Head of Financial Planning to help launch a new financial planning platform.

The way clients pay for financial planning services is also changing, with flexibility and need-based pricing becoming more common. Some clients may choose to pay flat fees for one plan option, while others may prefer to pay a monthly or quarterly subscription fee.

In the United States, broker-dealers are regulated under the Securities Exchange Act of 1934 by the Securities and Exchange Commission (SEC).

The SEC requires all registered brokers and dealers to be members of the Securities Investor Protection Corporation (SIPC), with a few exceptions. This means they must adhere to SIPC's regulations.

The 1934 Act defines a broker as anyone engaged in the business of effecting transactions in securities for others, and a dealer as anyone buying and selling securities for their own account.

To provide investment advice, broker-dealers must meet two conditions: the advice must be solely incidental to their brokerage activities, and they must not receive special compensation for it.

Broker-dealers may serve as distributors for mutual fund shares, receiving compensation in various forms, such as sales loads from investors or Rule 12b-1 fees paid by the mutual funds.

The Financial Industry Regulatory Authority (FINRA) is another self-regulatory organization that oversees broker-dealers in the US, enforcing compliance with SEC requirements.

The SEC has made changes to the net capital rule for broker-dealers, allowing those with over $5 billion in tentative net capital to increase their leverage ratios.

Here are some key regulatory bodies involved in overseeing broker-dealers in the US:

Japan has a unique approach to broker-dealers, with the term "securities company" being used instead.

Securities companies in Japan are regulated by the Financial Services Agency under the Financial Instruments and Exchange Law.

The "big five" securities companies in Japan are Nomura Securities, Daiwa Securities, SMBC Nikko Securities, Mizuho Securities, and Mitsubishi UFJ Securities.

Most major commercial banks in Japan also maintain broker-dealer subsidiaries, as do many foreign commercial banks and investment banks.

To operate in Japan, securities companies must be organized as kabushiki kaisha, which is a type of Japanese business entity.

Securities companies in Japan must also maintain a minimum shareholder equity of ¥50 million.

Regional broker dealers rely on a solid industry infrastructure to operate efficiently. This infrastructure includes a distribution plan for their funds, which they need to establish before entering the marketplace.

A distribution plan is crucial for a fund's success, as it determines how the fund's assets will be allocated and managed. This plan should be carefully considered to ensure the fund's goals are met.

To establish a distribution plan, regional broker dealers need to consider various factors, such as the fund's investment objectives and the target market for its assets.

Before your fund enters the marketplace, you will need a distribution plan.

A distribution plan is crucial for getting your fund noticed and attracting investors.

You'll need to consider the costs associated with distribution, such as marketing and advertising expenses.

Your fund's distribution plan should be aligned with your overall investment strategy and goals.

A well-thought-out distribution plan can help you reach a wider audience and increase your fund's visibility.

Clearing firms play a crucial role in handling the confirmation, settlement, and delivery of transactions, ensuring they are executed promptly and efficiently.

They maintain mutual fund platforms that provide access to thousands of funds available for purchase.

Broker-dealers employ clearing services by accessing clearing firm platforms, which requires multiple agreements, including a selling agreement between the broker-dealer and the fund's distributor.

A service or operating agreement is also necessary between the fund company or its affiliates and the clearing firm.

These agreements are typically complex and require careful negotiation to establish the terms of the relationship.