How Regulations Squeeze Small Competitors for the Benefit of the Banksters

An article at Investment News reports on the decline of independent small brokerage firms. These firms are squeezed by new regulations. The large firms have teams of lawyers that can deal with the changing regulation, not so for the smaller firms, so they get squeezed out of business. It's this type of regulation that results in the rich getting richer and others falling behind. Here's Investment News on the problems:

Small broker-dealers will continue to face strong head winds in 2013, and dozens will shut down, seek a merger partner or abandon the transaction-oriented style used by securities houses to become registered investment advisers that charge fees rather than commissions.[...]

 Defined by the industry as any broker-dealer with 150 registered representatives or fewer, small B-Ds make up the overwhelming majority of firms registered with the Financial Industry Regulatory Authority Inc. In the the first 11 months of 2012, pressures on the industry reduced the number of Finra-registered firms to 4,319 — 97 fewer than the year before.

That's a decline of 14% since the end of 2007, when Finra reported 5,005 member broker-dealers, according to its website. The majority of those that have closed have been small independent-contractor broker-dealers — many of them shops with 10 registered representatives or fewer, according to industry executives and analysts.

“The industry is now at 4,300 and change, and it will go to 4,000,” said David Alsup, national director of business development with Compliance Department Inc., a consultant. A net number of 12 to 14 broker-dealers will close per month for the foreseeable future, he said. “At 4,000, it will probably begin to stabilize, but that's still a net loss of 7% to 8% over the next three years.”[...]


Executives at broker-dealers have been complaining for years about overregulation, and the increased costs associated with compliance is making it increasingly difficult for many, executives said.

“There continues to be more pressure on small firms,” Mr. Alsup said. Last year, the Securities and Exchange Commission approved Finra Rule 4524, which requires broker-dealers to file additional financial or operational schedules or reports as Finra deems necessary for the protection of investors and the public. These documents are intended to supplement the broker-dealer filings with the SEC known as Focus reports. “It's a more detailed breakdown of financial information,” and firms had to first file such supplemental reports by the end of October, Mr. Alsup said.

“Broker-dealers can't keep up with the cost of business,” said David Sobel, general counsel with New York broker-dealer Abel/Noser Corp.[...]

“We're waiting to see the next 200 regulations from Dodd-Frank,” Mr. Sobel said, referring to the raft of financial regulations President Barack Obama signed into law in 2010. The SEC is still writing many of those rules. “Regulation is what everyone is afraid of, and how Finra and SEC will approach it.”