Last month fewer broker-dealers closed their doors and fewer new ones opened them - a drop in overall activity that appears to be the product of three factors, according to David Alsup, director of business development for The Compliance Department, a consulting firm that regularly tallies these numbers.
The rash of B-D closures due to bad investments in several notorious private placements - including DBSI Inc. and Medical Capital Corp. - appears to have wound down, according to Alsup.
"Second," he adds, "the increased regulatory burden has and probably will continue to slow down new formations [for the time being]. Third, the uncertainty of the upcoming elections is tending to put people on a hold pattern."
Alsup expects the slowdown in new formations to persist, but added that he can't predict the pace of closures until after the elections.
Nationwide, the department counted only 11 new formations and 14 closures in August. This compares with an average of 14 new formations and 25 closures every month for the past three years, according to the department. It also counted a net loss of 129 firms over the past 12 months. Much of this loss is the result of consolidation that is being driven by increased technology and compliance costs. Although the overall number of firms continues to drop, most brokers are remaining in the industry, the department has found: Despite a 10% drop in the total number of broker-dealers in the past five years, the total number of reps industrywide has fallen a correspondingly negligible amount, just 3.11%.
"The firms are going out but the reps are finding new homes," Alsup has said.
Overall, Alsup says he thinks the negative growth numbers may be coming to an end.
"I would not be surprised if we saw positive growth by second quarter of 2013," he predicts.