Friday, June 24, 2011

Small Broker-Dealers Closing At Fast Pace

Over 500 broker-dealers are expected to close in the coming year. That is not a good sign for the industry or for our collective financial health. If investors are limited to dealing with the banks for their investment and financial lives we will see more travesties like Lehman Principal Protection Notes, auction rate securities, CDOs and other "products" that allow the firms to take a position that is opposite what they are telling clients to do.

A large part of the problem, if not the entire problem, is over zealous regulation. While FINRA talks a good game, that message has not filtered down to the field, and there is far too much of a "gotcha" mentality. Its the regulations and overzealous enforcement that is going to put the firms out of business. I just wrote about this problem - FINRA Targeting Small Firms and Brokers?

FINRA needs to wake up. Smaller firms provide the advice, attention and real-deal financial counseling that individual clients need. Sure, there are some great financial advisers at the wire-houses - I represent tons of wire house reps all of whom care deeply for their clients - but the firms themselves are just poorly run machines with no regard for anything other than making a buck. Driving the small firms and brokers out of business with expensive and unnecessary compliance programs, coupled with outrageous fines and penalties for bookkeeping errors is harming our economy, not helping it.

Broker-dealer shrinkage: Closures rapidly outpacing new entrants
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