Is this the end of the broker-dealer?

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The financial industry is undergoing a shift from its tried and true traditional formula to one of increasingly sophisticated technology and software, being driven by regulatory might. With all the might and speed behind the technology driving trading and planning today, is there even a need for a broker/dealer anymore?

As evidence, consider how well Registered Independent Advisors (RIAs) are prospering without having to use the services of a broker/dealer. In fact, revenues for broker/dealers are chiefly advisory fees these days—and advice is not a business model that requires a broker/dealer. The lingering economic downturn continues to slim the ranks of smaller and less sound regional and independent broker-dealers both. The market appears to have succeeded in accelerating the evolution of its model. Those nimble enough to change will be rewarded with stating relevant.

Today’s broker-dealers face an uncertain future within this highly competitive marketplace.

Turbulent future

Meanwhile, expectations are that within this decade, RIAs will increase to match the number of broker/dealer advisors. Analysts and executives predict the landscape is going to change dramatically in the next three years as the buying and selling of firms accelerates. A number of major independent broker/dealers got hitched, which meant a lot of upheaval for financial advisors.

There are predictions that the broker/dealer of the future will likely be more of an advisor affiliate that might be restricted to focusing on branding, practice management, and some training. These advisors will have to put the interest of the client first, an event that already exists with many top advisors, and is beginning to take root with firms everywhere.

Customer loyalty in focus

Clients are demanding to be the primary concern, not a secondary consideration for an advisor. It will also have a high respect for the client and never put itself in a position where its interests diverge from the client or the advisor. Today's broker/dealers are already starting down that path with more and more fee-based structured relationships. Transparency about fees is a large part of that equation. While client investors by and large feel positively about the relationship they have with their advisor, a sizable number still want their advisors to be more transparent about fees. In a recent survey of investors, only four in ten said their advisors are very clear on how they’re compensated, while a nearly equal number want greater clarity about the situation.

In almost every way, building a foundation of trust has become more than difficult for financial professional, making their role that much more challenging.

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