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More Regulation Equals Fewer IBDs

Will smaller BDs go the way of small banks and community banks? Based on recent data as well as increased regulation, the similarities are striking, according to an industry recruiter quoted in a ThinkAdvisor article. In congressional testimony in 2012, Wake Forest professor Tanyo Marsch told legislators that Dodd-Frank’s requirements gave smaller banks burdens without benefits, which contributed to a 96% decline over almost three decades. Similar consolidation has happened to BDs, due in part to increased oversight: there has been a decline of more than 20% in the total number of firms since 2006 and a striking 34% decrease in the number of new firms formed since 2010.

Smaller firms (defined as those with fewer than 150 reps) best positioned to weather the storm include those that focus on alts and institutional business, 100% RIAs and those associated with insurance firms.

Does the recent wave of IBD acquisitions, marked by RCAP’s recent purchases of Cetera and four other firms, herald the start of even more consolidation among mid-market firms? A 2010 Small Business Administration study reported that the cost of complying with federal regulations is 36% higher for small businesses than for larger ones. Aren’t small companies supposed be the growth engine of the economy?

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