2017 The Lowest Year On Record For Registered Firms Entering The Industry

2017 was the lowest year on record for registered firms entering the industry, according to FINRA’s 2018 Industry Snapshot Report.

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At just 96 firms, this is the first time since FINRA has kept track of the number of firms that it has slipped from the triple digits.

Even the market crash of 08-09 had higher numbers than 2017 with 215 and 166 firms being added, respectively.

So, what is responsible for this continuing decline?

Where Have All The Firms Gone?

Chip Roame, managing partner at Tiburon Strategic Advisors thinks retirement is largely responsible for this decline.

“Many of the principals are baby boomers,” said Roame. He’s not wrong. The median age for employees in the financial services industry is 52.4 according to the 2017 Labor Force Statistics Survey. The average independent representative is 56-years-old and the average age of an Registered Investment Advisors is 51, based on data from Tiburon Strategic Advisors.

Retirement considered, it’s not the only cause of a decline in firms. Roame also cited increasing regulation as a possible cause for the drop in firms.

“Increasing and changing regulations is also causing some small firms to pull the plug,” Roame said.

The Big Are Getting Bigger

In addition to the hurdles of regulation and retirement, small firms also face the same obstacles as small businesses.

“IBDs like LPL are getting very large and RIAs like Fisher Investments, CapTrust, Financial Engines/Edelman, etc. are becoming very large firms,” said Roame. “Many who might have started their own businesses are now joining established firms.”

It’s difficult for smaller firms to compete with larger firms when they’re focused on staying afloat.

“Firms like Schwab have programs to open branches, again, limiting the number of stand-alone new firms,” said Roame.

According to Roame, things aren’t likely to change, in fact, he believes the decline will continue and possibly accelerate.

“If large firms had a reason to break up, that would reverse the trend, but I do not see that reason,” he said.

Despite the decrease in smaller firms, Roame says there’s still plenty of competition to keep the industry going.

“5,300 (2003) or even 3,700 (2017) is a huge number of securities firms,” he said. “There is plenty of competition. This is not a crisis.”

Surprising Positives

It’s not a crisis, but the decline in registered firms is indicative of the changes to the industry in recent years.

Roame likens the future of the finance industry it to the current state of the banking industry.

“We’ll have a few large firms, a kin to how the wirehouses (retail banks) consolidated,” he said.

The steady decline in firms is what leads Roame to believe retirement is the culprit behind the loss of 200-400 firms each year.

While 96 is an all-time low, Roame says it isn’t cause for concern.

“It was not hugely outside the 105-144 range of recent years,” Roame said.

On paper, the numbers paint a dim picture, but Roame remains optimistic saying that these changes bring new traits to the industry.

He said, “Maybe this is good. It adds professionalism to the industry.”

AdvisorNews Managing Editor Cassie Miller may be reached at cassie.miller@innfeedback.com. Cassie has an extensive background in magazine writing, editing and design. Follow her on Twitter @INNCassieM.

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