Brokerage Industry Death Spiral Continues

It’s been over for the small broker-dealer model for awhile, but a hundred-year-old industry doesn’t merely go away quietly and all at once.  There were companies manufacturing typewriters and word processors into the late 90’s and I’m sure the toga weavers were hard at work for decades after the fall of the Roman Empire.

And so it goes here in the early dawn of 2012 as two of the most well-regarded boutique broker-dealers have been extinguished against the backdrop of a raging bull market for everyone else…

From CNNMoney:

The 2012 surge in the stock market hasn’t been positive for everyone on Wall Street: Hundreds of small brokerage firms on death watch.

Trading volumes and commissions are at their lowest levels since 2007. And so far this year, three small but well-known brokerage firms have already had to call it quits.

The swift unwinding of WJB Capital Group, Ticonderoga Securities and Kaufman Brothers has left investors to wonder who’s next. Representatives from WJB, Ticonderoga, and Kaufman did not return calls for comment.

The problem here is a very simple one – the research is not driving trading commissions large enough or frequently enough to hold up the cost of running a firm.

Trading is now done at fractions of a penny, often with little or no research exchange between institutional brokers and their clients.  Buyside shops have brought research in-house at very little cost (unemployed analysts are practically swinging from the rafters here in NYC).  In addition, single stock selection has been de-emphasized a great deal as fund flows have turned from the open end actively managed fund complex to the passively managed ETF snackbar.  When the average holding time for a security is measured in water drips from a faucet, why should anyone bother to care about how this quarter’s free cash flow stacks up against next quarter’s estimate?

And if the research isn’t generating trades, and the trades that are getting done are subject to commission deflation (2 cents a share!) and on top of all that the firms can’t supplement by making markets at a decent margin thanks to decimilization – well, what exactly is it…ya do here?

There are 4066 smaller brokerage firms left.  I’m rooting for you guys, but it won’t be easy.

Which Brokerage Will Be The Next To Fall?  (CNNMoney)


This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. ingredient in viagra commented on Jan 23

    ingredient in viagra

    Brokerage Industry Death Spiral Continues – The Reformed Broker

  2. taking half a viagra for fun commented on Jan 23

    taking half a viagra for fun

    Brokerage Industry Death Spiral Continues – The Reformed Broker

  3. 20mg cialis commented on Jan 24

    20mg cialis

    Brokerage Industry Death Spiral Continues – The Reformed Broker

  4. canadian pharmacy viagra commented on Jan 24

    canadian pharmacy viagra

    Brokerage Industry Death Spiral Continues – The Reformed Broker