Finra Regs Force Sale of Small BrokerDealers


( Several factors currently at play, including Finra regs may contribute to a substantial sell-off of small broker-dealers in the near future, which in turn will drive down what advisors can command in signing bonuses, ThinkAdvisor writes.

Existing Finra regulation already makes it difficult to remain profitable without scaling up, according to the web publication, with brokers complaining about the resources they must commit to meet all the requirements for disclosure, record-keeping and reporting.

LPL Financial, which has been in the regulator’s crosshairs over the past few years, should be a warning story to smaller firms, according to ThinkAdvisor. Furthermore, the upcoming fiduciary rule implementation by the Department of Labor will dampen profitability still further by placing restrictions on product choices and imposing labor-intensive requirements on disclosure in retirement accounts, while increasing competition from robo-advisors will continue the downward push on fees, the publication writes.

The website suggests the “tipping point” for broker-dealers to stay profitable may soon move to those with $25 million in revenue and higher from the current $10 million in revenue.

The strong dollar is also making it attractive for foreign owners to sell off their broker-dealers, including AXA Advisors, Jackson National and Allianz, ThinkAdvisor writes. In addition, insurance companies such as ING, MetLife, Nationwide and Transamerica have been selling off independent units while favoring those that sell proprietary products, while wirehouses are seeking 15% returns on their broker-dealers. The only potential buyers out there are larger broker-dealers and private-equity firms, the web publication writes.

What this flood of broker-dealer sales means for advisors could be much lower sign-up packages: rather than the 200% trailing revenue witnessed earlier in 2015, bonuses are likely to come back down toward the 30% to 40% of trailing revenue seen earlier in the 2000s, according to ThinkAdvisor.

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Human Advisors War On Robo-Advisors

human-vs-robot-09 blog update profiles human advisors trying to combat the recent rise in the use of robo-advisors orver human advisors. Robo advisors are a class of financial adviser that provides portfolio management online by using algorithms and use minimal human intervention.  Robo-advisors are typically low-cost, have low account minimums, and attract younger investors who are more comfortable doing things online. With all these things working in robo-advisors’ favor, human advisors have been struggling to compete with the robo-advisors. CNBC’s Sarah O’Brien highlights recent tactics human advisors are using in her article, “Robo wars: How advisors are taking on cybercompetitors“, with an excerpt of the article below.

The growth of low-cost robo-advisors has made one thing clear to financial industry analysts: Human advisors who provide little more than investment advice have their work cut out for them.

“Advisors need to be more strategic about what they can offer clients,” said Will Trout, a senior analyst for research and consulting firm Celent. “Stock picking is a waste of time, and allocating has become a commodity because it can be executed by algorithms. So advisors have to operate at a much higher level and [address] a client’s unique situation,” he said, adding, “Otherwise, what are clients paying for?”

So-called robo-advisors are automated online investment advisory services. Along with providing automated, algorithm-based portfolio management advice, some of them offer automatic portfolio rebalancing and tax-loss harvesting.

Robo-advisors also charge less than the industry standard of 1 percent of assets managed for financial advisory services. And that, say analysts, is going to put pressure both on industry fees and on advisors themselves to justify fees that are higher than a robo’s.

To continue reading CNBC’s article on human advisors combatting robo-advisors, click here.