RIA Industry Will Continue To Change Shape During 2013 As Small Firms Merge, Disappear, Or Switch To Fee-Based Compensation

Monday, January 21, 2013 08:16
edit
RIA Industry Will Continue To Change Shape During 2013 As Small Firms Merge, Disappear, Or Switch To Fee-Based Compensation

Tags: Dodd-Frank | independent broker-dealers | registered investment advisors

The RIA industry, particularly small broker-dealers, will continue to navigate a new regulatory environment and the costs that go along with it, continuing the consolidation that began in earnest in 2012. 
 
These forces will continue to reconfigure the industry throughout 2013.

This Website Is For Financial Professionals Only


Smaller firms will likely continue to struggle and some may shut down. Others may decide to merge and others may simply give up their commission-based business to become fee-only advisors.
 
Record low interest rates for money market accounts, increased regulatory costs, competition from discount brokerages, and increased income tax rates that will reduce the availability of client investment dollars to put into the markets are the sources of these challenges.
 
Small broker-dealers are defined as any firm with 150 or fewer registered reps and make up the majority of FINRA registered firms.
 
Pressures such as the ones mentioned above reduced the number of small firms by 97 in 2012.
 
Another factor is that registered reps are growing older and firms with only two to three people at the top struggle to come up with a viable succession plan.
 
Increased regulation also makes it difficult to manage the costs of doing business.
 
But the buoyancy of the markets will likely help woo investors back. And some of the firms that disappeared in 2012 were caught up in Ponzi schemes or other fraudulent activity.
 
Small firms have felt the largest fallout from the increased fees and regulations resulting from the Bernard Madoff Ponzi scheme revelation and others that followed.

Comments (6)

...
brentb843
RIA industry does not include small broker dealers....please help me, I am confused.
brentb843 , January 22, 2013
...
lisagray
Brent. Smaller broker-dealers do have to be registered don't they? In that case, aren't smaller broker-dealers also registered investment advisors?

Perhaps the confusion is in designating them as independent. If I'm wrong, I'm happy to be corrected, understanding that a small independent RIA may indeed not be a broker-dealer.

As I understand it, even large wirehouses are registered as investment advisors with the full fiduciary implications of that. It's just that they don't want their reps to be subject to the risk of also being held liable as fiduciaries.

Again, happy to be corrected if I'm in error.
lisagray , January 22, 2013
...
lisagray
This section of the SEC site might help: http://www.sec.gov/info/smallb...t-secg.htm . The SEC provides alternative means for advisors who are also broker-dealers to comply with this rule.

This section specifically states that these advisors are registered under the Investment Advisor Act of 1940 but also may be broker dealers.

The point of the article is that small firms will continue to be swallowed up as the industry consolidates.
lisagray , January 22, 2013
...
brentb843
RIA firms registered under 1940 Act. Broker-dealers registered under '34(check my accuracy on this or 33 act) Act.

Merrill Lynch is a corporation registered as an RIA under the 40 Act and as a broker dealer under 34 Act. Not all companies that register as an RIA also register as a broker-dealer (we sure aren't) and vice versa.

More importantly, the small broker dealers do not self clear, they use another broker dealer and 'private label.' Correspondent is what the term is. These firms set up separate corporate entities. One for the correspondent b/d and the other for the RIA.

What is also very important is the registered rep term. 'Registered Rep' is the definition of the broker (series 7) under the broker dealer. The IAR (investment advisor rep) is the individual under the RIA.

Registered Reps are not a part of the RIA industry unless they are dually registered.

I think we all agree the RIA industry is generally accepted as fee-based side distinct from registered reps who get commissions.

brentb843 , January 25, 2013
...
brentb843
Don't get me started on 'independent' broker dealers. Is UBS not independent?
brentb843 , January 25, 2013
...
brentb843
I think your confusion is assuming the broker-dealer, not the corporation, is the actual entity that registers.
brentb843 , January 25, 2013

Write comment

You must be logged in to post a comment. Please register if you do not have an account yet.

busy