What a year for broker-dealers and their advisers

As the pandemic enters its third year and everyday life takes on some semblance of normalcy, the InvestmentNews team looks back at the most interesting industry developments of 2021.

Wall Street and its array of outposts from Phoenix to Austin to St. Petersburg, Florida, should be popping the champagne corks. Broker-dealers and their roughly 300,000 retail, client-facing financial advisers will be hard-pressed to have a better year than 2021.

The past 12 months have seen a number of publicly reporting brokerage firms, including industry bellwethers Merrill Lynch and LPL Financial, post record revenues or profits, all-time highs in assets or staggering peaks in assets per adviser.

The decades-long shift from charging clients fees, which are steady and predictable streams of revenue, rather than commissions, which fosters an out-of-date “eat what you kill” mindset among brokers, continues to gather steam if not pervade the most dominant firms completely.

InvestmentNews reported in April that, in the face of the obstacles caused by the pandemic in 2020, the industry hit a milestone: For the first time since InvestmentNews started its survey, the top 25 firms last year reported that fee revenue made up 50% of total revenue on average, with revenue from commissions at 35% and other revenue, primarily generated from interest-rate spreads, of 15%.

Even better, the broad financial advice market in 2021 did not reveal the manifestation of one of its greatest fears: meaningful erosion of brokerage firms’ fee schedules or any substantial lessening in overall fees firms charge clients.

That means clients are happy, if still unsure of what they actually pay their financial advisers for services, as the stock market hits record highs. Financial advisers are content with bigger paydays, and most firms’ profits are fatter than ever.

And in Washington, the brokerage industry has lots to be cheery about. The Federal Reserve is likely to raise interest rates at some time to stave off inflation in the next 12 to 24 months, only adding to firm profits, and Republicans are effectively blocking the Democratic Biden administration from raising corporate tax rates in any meaningful way.

And all this occurred in the second year of the Covid-19 pandemic, which momentarily devastated the brokerage industry in March 2020. The stock market, after plummeting 34% in a matter of weeks, rebounded quickly, and brokerage firms scrambled to figure out how to have employees work from home.

“It’s been an extended bull market, even over the last few weeks since the Omicron variant was detected and the market has had more volatility,” said Danny Sarch, an industry recruiter. “People have adjusted to the new normal, and companies haven’t been heavy-handed about policies.”

Financial advisers and brokerage employees working from home used to be a problem, and many worry that industry regulator Finra — the Financial Industry Regulatory Authority Inc. — will in the near future see such work arrangements as an issue for financial advisers affiliated with broker-dealers.

“It’s causing some anxiety for the brokerage firms,” Sarch said. “Finra’s policies have to adjust to the so-called new normal for work or it will drive more and more people to the RIA side” of the financial advice industry, or one in which the states and the Securities and Exchange Commission, not Finra, are the regulators.

To read the rest of this series:

The post What a year for broker-dealers and their advisers appeared first on InvestmentNews.

Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.

Andrew Vincent
Andrew is half-human, half-gamer. He's also a science fiction author writing for BleeBot.
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