Broker/Dealer Industry in Good Shape

The independent broker/dealer business model is quite healthy, growing in revenue, profits, and number of reps over the 10-year history of the Broker/Dealer Financial Performance Study conducted by Moss Adams for the Financial Services Institute. The most recent version of the study–which was conducted in 2004 and its findings released on August 19–surveyed 49 broker/dealers with a total of 40,000 advisors who service more than 1.2 million clients; the average B/D in the survey had 817 affiliated advisors. The average B/D in the survey has grown about 3.5 times in revenue from 1995 ($27.9 million) to $93.5 million in the 2005 survey, and over the past two years alone has grown an average 30%. The average practice in the survey had nearly $100,000 in revenue in 2005, compared to $55,000 in total revenue in 1999. The average operating profit margin improved from a negative 1.4% in 2003 to a positive 1.4% in 2004, though margins are still far removed from the high-water mark of 3.4% posted in 1998. One of the financial surprises in the survey is that the gross margins of B/Ds have declined as average revenue per advisor has steadily increased over the past seven years, from $54,983 in 1998 to $84,517 in 2004. The survey points out that those broker/dealers "that put significant focus and resources towards transitioning to fees have achieved the best results."