Summer Brokerage Report examines shifting business mix of brokerage firms

The benefit of a fee-based revenue stream to a brokerage firm is 
nothing new, and investment dealers are not unique in their search 
for revenue opportunities that are less volatile than the markets 
that drive them. Successive periods of economic distress and market 
volatility in the past two decades have convinced the industry of the 
wisdom of this search and the associated need to move away from 
transaction-based commissions as the mainstay of their bottom line.

The extent to which brokerage firms have adapted to this new mantra 
is not consistent. The degree of adoption is driven by a variety of 
factors, including competitive pressures, strategic focus, ownership, 
financial and technical resources and, last but not least, size.

The relative ease with which the large firms have been able to deal 
with the disruptive events of the past year reflects both the wisdom 
of their strategies and the benefits of scale. There is evidence that 
initiatives taken by leading firms in the past few years to shift 
their business mix and focus are becoming the new industry standard, 
and that smaller, independent firms have little choice but to be 
efficient followers. It is also evident that some of the revenue and 
expense issues that face large firms present different challenges to 
their smaller competitors.

This issue of The Retail Brokerage Report looks at these issues and 
changes to the revenue and expense mix over the last four years, as 
brokerage firms of all sizes embrace this new business model that is 
biased towards the generation of fee income. The research covers a 
period of four years that have included three years of solid returns 
and one year which featured a credit crisis, gloomy economic 
prospects, the re-appearance of the bear, and an inflation rate that 
has also risen from its slumbers.

The Summer 2008 issue of The Retail Brokerage Report is now available 
for subscriber download.