The Road Ahead for Broker/Dealers

The Broker-Dealer of the Future report from Pershing LLC, a subsidiary of The Bank of New York Mellon Corporation, released today with InvestmentNews and CAST Management, examines the outlook for broker/dealers in order to identify opportunities and challenges.

Tech Smart

The study addresses the evolving technological demand from the broker/dealer. Practice management could bridge the gap between the expectations of investors and the products of a typical broker/dealer, according to a press release about the study.

Broker/dealers will need to provide investment professionals with innovative technology and strategies, and continue to evaluate processes to improve efficiency, Pershing says.

“Investment professionals will need to increase their productivity in order for broker/dealer firms to optimize their growth and profitability,’ said George Braunegg, founding principal and executive vice president at CAST Management Consultants, Inc, in the release. “Achieving higher productivity will come through various means including innovative solutions using new and existing products, training, practice management support and focused deployment of technology. Determining which of these methods to focus on and rationalizing which organizations to partner with to achieve this goal will be essential for best-in-class broker/dealers of the future.”

Adviser Shortage

Although broker/dealers are expected to grow, they are coming up against a shortage of investment professionals.

As the average investment professional is approaching their mid-50s, broker/dealers should concentrate on succession planning in order to transition client relationships and retain the assets in the organization, Pershing says (see Firms Increase Recruiting Efforts for New Advisers).

Adviser Revenue

The world of the broker/dealer and registered investment advisers (RIA) are no longer distinct.

Advisory fees are the number one source of revenue for broker/dealers, and this is expected to grow. The study predicts that in five years, the proportion of revenue represented by fees might exceed 50% of a broker/dealer’s total revenue.

With this information in mind, broker/dealers have to continue to develop strategies to keep dually registered firms on their platform, the study suggests.

“The broker/dealer industry is entering a period of great opportunity, a time when financial advice will be needed more than ever before,’ said Jim Crowley, managing director at Pershing LLC, said. “The broker/dealer of the future will be a financial organization that is well differentiated from the competition and capable of attracting and retaining talented investment professionals. Broker/dealers must close the gaps between their current value proposition and the needs of their investment professionals and investors in order to achieve continued growth and success over the long-term.”