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Mediant Jul 23, 2020 2 min read

What Is Keeping Broker-Dealer Executives Up at Night?

According to ThinkAdvisor’s Recent Survey, Regulatory Compliance Tops the List.

In late March, financial services firms and other businesses had to quickly implement business continuity plans that included most or all employees working remotely. Making the environment more complex is compliance with the SEC’s Regulation Best Interest (Reg BI), vulnerability in markets due to COVID-19 and the economic fallout, among other factors. Also, the industry is awaiting news from the government on the planned Schwab-TD Ameritrade merger.

Amidst this rapidly evolving landscape, nearly 40 broker-dealer presidents participated in ThinkAdvisor’s recent survey on the trends affecting the industry and where it’s headed in 2020. Key topics included: M&A/consolidation; Reg BI/compliance; technology challenges; fee compression; rising costs; robo rivals; market volatility; working remotely; privacy/cybersecurity; state fiduciary rules; and diversity.

Losing Sleep at Night

When asked what most keeps the broker-dealer executives up at night, more than one third said it’s the need to do and spend more on regulatory matters, which is similar to last year’s poll results, according to ThinkAdvisor. The biggest headaches for their advisors include both compliance demands and business growth (for about one third of the broker-dealers each).

When asked which specific regulatory matters were most concerning, the majority of executives said privacy and cybersecurity (65 percent). This is not surprising since protecting clients’ financial data and personally identifiable information (PII) continues to be a top priority for financial services firms. Add to that having more employees working from home during the pandemic and security has been made a bigger priority for many firms right now. Also, the SEC wants to know that PII does not get touched regardless of where it’s accessed.

The second most concerning regulatory matter for broker-dealer executives is Reg BI (53 percent). Other regulatory concerns included 12b-1 fees and revenue sharing tied to mutual funds (41 percent). Also, approximately 30 percent see cash management or bank “sweep” programs as a regulatory burden.

Regulatory Readiness – Reg BI

Despite that Reg BI was the second highest regulatory concern, 97 percent of broker-dealer executives said they were somewhat or very prepared for the regulation.

ThinkAdvisor notes that many view these changes as requiring significant shifts in the industry (37 percent). Others are split over whether Reg BI is likely to produce some compliance challenges and confusion (31.5 percent) or have only limited impact on the broker-dealer’s compliance programs and costs (31.5 percent).

Top Spending Priorities

Almost all broker-dealer executives said they planned to increase spending on compliance this year (95 percent) while 85 percent said they planned to boost spending on platforms and technology. Eighty-two percent of broker-dealer executives said they planned to spend more on RIA/fee-based programs.

Survey results show that other areas where spending is likely to increase from last year include: business-growth/coaching (73 percent); mergers and acquisitions/recruiting/succession planning (71 percent); and new services (44 percent).

Even with higher spending and great compliance burdens, 91% of broker-dealer leaders remain confident in the outlook for the business.