Standard & Poor's says that "the recovery is likely to be bumpy" for the brokerage industry, but independent firms seem poised to weather the risks better than their bank-owned peers.
The S&P report itself is for the rating agency's paying customers only, but we got to see a copy.
The title, "Independent U.S. Brokers Could Face Market Shifts But Should Maintain Stable Credit Profiles," really sums it up nicely.
S&P thinks that the fact that the captive brokerage firms are owned by massive banks is a potential liability -- basically, as we've seen with Merrill Lynch and Wells Fargo Advisors, the bank could weigh the brokerage unit down.
(We have also seen this from the other side, with wealth management firms like Wilmington Trust that got into banking and were eventually buried in rotten loans.)
Even though independents like LPL are smaller and more specialized, their refusal to even dabble in becoming full-spectrum financial providers actually helps their credit profile by keeping them out of dangerous areas, S&P says.
The fact that S&P went out of its way to affirm the channel's credit tells us quite a bit.
And the lesson is applicable for even smaller independent operators in the industry. Time and again, firms borrow too much to expand into markets they never really wanted to serve anyway.
At best, the new businesses cut into their profitability. At worst, the firms implode.