Broker/Dealer Challenges Shift Since 2010

In just two short years, suitability review and sales practice monitoring have become the challenges facing broker/dealers, according to a white paper released today by Albridge/Beacon Strategies.

The whitepaper, Broker-Dealer Sales Practices Oversight: Secrets of Their Success, points out that the increased focused on suitability is being driven by FINRA. Fines related to suitability more than doubled from 2010 to 2011, Albridge said.

For the first time, social media appeared as one of the top 5 challenges in this survey. “We believe the major challenge broker-dealers face with social media relates to FINRA standards for supervisory review of advertising, which generally require compliance pre-approval,” the report said.

Of course, regulatory changes and compliance processes continue to burden b/ds, as the report points out. In a poll by, a majority of readers said the independent broker/dealer business was not sustainable. Here’s what the report had to say about the b/d environment:

The increase in regulatory staffs, multi-disciplinary expertise and scrutiny that we predicted in 2010 has become real, and perhaps recently it has begun to accelerate. We believe regulators will hasten the traditionally sluggish pace of change in some critical compliance areas, and they will also continue to use both carrots (cost savings) and sticks (sanctions) to force changes that increase automation while addressing regulatory hotspots.

Cost pressures are another external force driving change. Only a few years ago, broker/dealers of all sizes were enjoying robust revenue growth and healthy profit margins. Some firms did not watch their bottom lines very closely because there was always more money to be made on the top line. Now, of course, brokerage firm executives live on the bottom line, and it is not far from their pillows at night.

Not exactly a rosy outlook…


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