FINRA 2024 Industry "Snapshot" Shows Shifts from Brokers to Advisers
Commentary by Steven Lofchie
In its annual securities industry "snapshot" report, FINRA found that the number of broker-dealers declined every year since 2019, and the number of investment adviser-only firms increased over the same period.
The report documents the shift in business from broker-dealers to investment advisers. Among the findings:
- the number of registered representatives declined (from 624,609 in 2019 to 612,423 in 2021), and increased (from 620,873 in 2022 to 628,392 in 2023);
- the number of FINRA member firms declined every year from 2019 (from 3,517 members in 2019 to 3,298 in 2023);
- the number of large firms declined (from 168 in 2019 to 155 in 2023), mid-size firms stayed the same at 198 and small firms declined (from 3,151 in 2019 to 2,945 in 2023);
- over the same time period, the number of investment adviser-only firms increased every year (from 28,135 in 2014 to 31,971 in 2023); and
- more associated persons of FINRA firms are dual registered as broker-dealer investment adviser representatives than are registered solely as broker-dealer personnel.
In addition, the report contains data on various other kinds of industry activity, including firm marketing and advertising, branch openings and closings and the geographic distribution of firms. Among the geographic distribution of firms by headquarters findings:
- the number of firms in California declined (from 406 in 2019 to 344 in 2023);
- the number of firms in Florida increased (from 178 in 2019 to 245 in 2023);
- the number of firms in Massachusetts declined (from 132 in 2019 to 115 in 2023);
- the number of firms in New York declined (from 1,038 in 2019 to 926 in 2023); and
- the number of firms in Texas increased (from 201 in 2019 to 206 in 2023).
Commentary
The numbers say that it is more attractive to be an investment adviser than to be a broker-dealer. This seems likely to be a product of the regulatory burden of compliance with broker-dealer regulation, as opposed to investment adviser regulation. It is worth asking whether the decrease in the number of broker-dealers, as opposed to advisers, is a positive for retail investors.
Perhaps the most surprising statistic, at least by size if not direction, is the relative performance of California as compared to Florida. The number of broker-dealers headquartered in California declined by somewhat over 15 percent; at the same time, the number of broker-dealers headquartered in Florida increased by over 37 percent. That is quite the disparity. To what should it be attributed?