Securities Brokers
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Quarterly Insight, 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
Coronavirus Update
Apr 28, 2022 - Markets Struggle As Inflation Returns
- Most major stock market indices are in the red or barely up for the year as of late April. Many analysts said early in the year that the double-digit annual stock price increases of recent years looked unlikely with most central banks around the world using tools like higher interest rates to slow or reverse consumer price inflation. More than 80% of analysts polled by Reuters news service in February said that inflation would have a significant or very significant impact on company earnings this year.
- Markets have been on a general upward trend since dropping dramatically in March 2020 at the onset of the pandemic. Strong consumer demand, robust corporate earnings, and favorable monetary policy helped fuel hefty returns for investors. The S&P 500 rose more than 20% in 2021 and grew 16% in 2020. Some investors believe, however, that markets could be due for a slowdown in 2022 as the Federal Reserve moves to curb inflation, according to The Wall Street Journal. Some Wall Street watchers expect Federal Reserve policy changes, including interest rate hikes and cessation of bond purchase programs, to affect firms’ future earnings growth and valuations.
- Many brokerages saw new accounts and revenue rise as market volatility led to a flood of new accounts and significant increases in trade volumes. The number of investors – and trades – increased as brokers cut their fees, and the pandemic led to pricing volatility which drew new investment. More than 10 million new brokerage accounts were opened in 2020, according to JMP Securities; another 15 million accounts were added in 2021. There were several trading sessions between mid-2020 and the end of 2021 where retail investors accounted for more than a third of trading activity, according to estimates by JPMorgan. More professional investors are tracking retail investing message boards due to the influence of retail investors in 2021, according to Bloomberg Intelligence.
- Much of the rise in 2020 and 2021 trading activity was in options contracts. Options trading in 2020 was up more than 50% compared to 2019. Year-to-date average daily options contract trading volume was up 35% year over year to the highest level ever as of the end of November 2021, according to Options Clearing Corporation. Brokers are required to ensure individual investors understand the risks and meet financial and investment experience criteria to be approved for options trading due to the complicated nature of the process. Fintech investing apps have, in some cases, streamlined the options approval process. Current options trading approval rules were written in 1980. The significant surge in options activity has prompted some to call for the Securities and Exchange Commission to update the approval requirements, according to The Wall Street Journal.
- Pandemic-related stock market volatility and bargain hunting have drawn in record numbers of new investors and boosted trading volumes during the pandemic, but some Wall Street watchers suggest there are signs that retail investor activity may have hit a peak. Consumer savings levels surged amid stimulus payments and tax credits earlier in the pandemic, and some of that extra cash made its way into retail investing accounts. The amount of cash on US household balance sheets, as a percentage of total assets and net worth, has returned to historical norms, however, according to Morgan Stanley’s Chief Cross-Asset Strategist Andrew Sheets. Equities holdings as a percentage of household wealth are at an all-time high which may signal that individual investors are comfortable with their current exposure to the market, according to Sheets.
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