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
                                Source: Vertical IQ and Inforum

                                Recent Developments

                                Mar 10, 2023 - New Organization Supports Individual Advisors
                                • A new organization has formed to help financial professionals including registered representatives, associated persons, traders, bankers, and back-office staff. The Financial Professionals Coalition (FPC) is meant to be a resource for anyone looking for advice on leaving large brokerages and setting up their own advisory or broker-dealer firms, dealing with regulators, finding expert witnesses, obtaining licensing, or running a practice. Co-founder John Burris said that many organizations like the Securities Industry Financial Markets Association and the Financial Services Institute look out primarily for the interests of large brokerage firms. The FPC is primarily meant for planners who are registered with the Financial Industry Regulatory Authority as brokers and investment advisor representatives registered with the Securities and Exchange Commission and individual states, but it will also be open to back-office workers, insurance representatives, traders and virtually anyone else whose work touches on financial services.
                                • The Securities and Exchange Commission approved a rule allowing a "restricted firm" designation to be affixed to broker-dealers that have run afoul of regulators too many times. These designations will show up in a prominent place whenever such a firm is searched for in the Financial Industry Regulatory Authority's BrokerCheck database. Regulators said their goal was to flag brokerages "that present a high degree of risk to the investing public." FINRA, the broker-dealer industry's self-regulator, first gained the ability to place the restricted label on firms in January 2022, but the designations were not released to the public.
                                • 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.
                                • 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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