Securities Brokers
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 6,700 securities brokerages in the US generate the majority of revenue through asset management fees or by charging commissions and transaction fees on client trades. Brokerages can also earn net interest revenue (difference between interest earned and brokerage interest expense) and fees for providing financial planning and advisory services. In addition, firms may receive “payment for order” for directing trades through a particular exchange or channel.
Regulated Environment
The securities industry is highly regulated at the federal and state level.
Growth In Self-Directed Investors And Online Brokerage
The popularity of self-directed and online trading continues to grow, driven by investors’ increasing desire for control.
Industry size & Structure
The average securities broker operates out of a single location, employs 41-42 workers, and generates about $19-20 million annually.
- The securities broker industry includes 6,700 firms that employ about 278,500 workers and generate about $132 billion annually.
- The industry is highly concentrated; the top 50 companies account for about 86% of industry revenue.
- Large companies include INTL FCStone, Charles Schwab, and TD Ameritrade. Major banking, investment banking, and mutual fund companies, such as Morgan Stanley, JPMorgan Chase, and Vanguard, also have brokerage divisions. Large firms may have a global presence.
Industry Forecast
Securities Brokers Industry Growth
Recent Developments
Nov 3, 2022 - Millennials, Gen Z Want Crypto Options For 401(k) Plans
- Nearly 50% of Gen Z and millennial employees want to invest in cryptocurrency via their 401(k) retirement plan, according to Charles Schwab's 2022 401(k) Plan Participant Study. The option is available to some, as Fidelity Investments, which manages the employee retirement benefits programs for nearly 23,000 businesses, has given companies the ability to offer employees the option to invest in bitcoin through dedicated "digital assets accounts." If an employer offers this option, employees can invest up to 20% of their 401(k)s in bitcoin. The U.S. Department of Labor has warned, however, that companies which manage 401(k) plans should "exercise extreme care before including direct investment options in cryptocurrency." "There's no underlying fundamental value to cryptocurrency," says Greg McBride, chief financial analyst at Bankrate. "It's neither time tested nor proven as a sustainable wealth creator."
- Proposed regulations from the Securities and Exchange Commission would establish a common benchmark for how environmental, social, and governance investment (ESG) products are labeled, marketed, and reported. ESG funds have boomed, exceeding $350 billion in net assets in 2021 in the US. Industry experts say that any changes could prompt investors to exit from funds that don’t appear to be taking the standards seriously. ESG definitions vary widely between funds, making it possible for fund managers to exaggerate their consideration of environmental and other criteria in selecting constituents, according to the SEC. Mutual fund ratings firm Morningstar counted more than 600 funds mentioning ESG in investor literature before it changed how it tracked such funds in part because blanket sustainability statements are increasingly common, the company said in a letter to the SEC.
- A legal test is used by US regulators to determine what qualifies as an investment contract and therefore should be regulated by the US Securities and Exchange Commission (SEC). SEC chair Gary Gensler said that most cryptocurrencies pass it. “Of the nearly 10,000 tokens in the crypto market, I believe the vast majority are securities,” Gensler said. Gensler is referring to the so-called Howey Test, which stems from a 1946 US Supreme Court case. Some experts note that crypto prices are in a bear market or “crypto winter,” and regulation appears increasingly likely. Crypto advocates—including some members of Congress—have pushed for any regulation to come from the US Commodity Futures Trading Commission (CFTC) rather than the SEC. Gensler, who ran the CFTC from 2009 to 2014, has acknowledged that a minority of coins, including bitcoin, might qualify as commodities rather than securities.
- The US Securities and Exchange Commission (SEC) has proposed rule changes for the handling of retail stock trades. The plan is meant to increase competition by requiring trading firms to directly compete to execute retail investors’ trades. SEC chair Gary Gensler said that the new rules would require market makers to disclose more data around the fees these firms earn and the timing of trades for the benefit of investors. Industry experts say that the proposal is a response to the 2021 meme stock mania, when an army of retail investors went on a buying spree of "meme stocks" like GameStop and AMC, squeezing hedge funds that had shorted the shares. Many investors purchased shares using commission-free brokers such as Robinhood.
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