Stock Brokers Leaving the Industry En Masse

In news that is sure to surprise absolutely no one, the Wall Street Journal reported earlier today that stock brokers are leaving the industry in droves.

According to the Wall Street Journal, the industry saw a net loss of 2,800 brokers in April alone.

FINRA (the Financial Industry Regulatory Authority) has been measuring the net change in the number of licensed brokers at U.S. securities firms since 1994.

Prior to 2009, the largest negative net change for one year was 11,500 brokers. This means that the number of brokers working at U.S. securities firms shrank by 11,500. This high-water mark, which was set in 2002, will be completely shattered in 2009.

According to FINRA, the number of brokers employed at US firms has shrunk by 11,600 in 2009, and the year is only four months old.

At this current pace, there would be a net negative change of 36,000 brokers by the end of 2009, according to the Wall Street Journal.

So what gives? Why are so many brokers leaving the industry? There are a number of reasons, including:

1. Many firms are letting go of their lowest-producing brokers.

2. Many brokers, citing a number of different reasons (stress, less money, etc), are electing to leave the industry and move on to something else.

3. Many clients are pulling their cash and either a) moving to brokers with a better track record through the decline or b) moving into cash or managing their own money. This results in lower producing brokers (see #1).

4. New business is very hard to come by, given the public's distaste for the markets. Lower disposable income is halting the inflow of funds into the industry right now as well.

5. Lower volatility = less volume = less commission income.

6. Merger activity has helped to cull the ranks of brokers working at US firms.

Working as a broker is stressful even at the best of times - during a bear market, it can be downright intolerable.

It's not all bad in the industry - those brokers who generate a large amount of fees and have many high net-worth clients under management are in high demand right now.

For the rest of the industry, especially those just starting out, times are very tough.

Question: will the industry ever see the massive inflow of new brokers that entered the industry during the dot-com bubble days, or are those days gone forever?

Source: WSJ - Brokers Abandon Wall Street

Filed under: General Knowledge