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.

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