Challenges Facing B-Ds

Terry Flanagan

With trading volume and investor activity on the decline, many broker-dealers are facing difficult challenges ahead.

Many brokerages, whether bulge-bracket affiliated or independent, have been feeling the pinch, with the smaller ones suffering the most. Private New York firm WJB Capital has closed down its broker-dealer operations, effective immediately. The company attributed the decision on the ongoing issues facing the global capital markets.

“Wall Street is a difficult environment right now,” said Craig Rothfeld, chief executive officer of WJB Capital. The difficult conditions have left the company unable to raise sufficient capital necessary to allow the firm to continue its operations given the current climate, Rothfeld added.

Although the company has shut down, a bankruptcy filing is not expected, according WJB’s general counsel.

With some broker-dealers closing up shop, it provides opportunities for those that are wading through the uncertainty.

Last month, broker-dealer Multi-Financial Securities announced that it had entered into an agreement with Pacific West Financial Group to bring over a group of advisors from Pacific West, to effectuate a “seamless transition for clients. Pacific West on the same day announced that it was discontinuing its operations as a result of declining margins in the independent broker-dealer space.

Increasing compliance, technology and regulatory costs have left many independent broker-dealers with no choice but to shut down.

“Regulation has become so burdensome, (independent broker-dealers) can’t afford to keep up with it,” Robert Hackel, managing director of R.F. Lafferty, an independent broker-dealer, told Markets Media. “Most of what they’re trying to regulate now could have been done with existing rules, if they tried to enforce it.”

The closure of WJB and Pacific West is the latest during a time that has been difficult for independent broker-dealers. MF Global was perhaps one of the more high-profile examples in recent memory, in a process that has been ongoing over the past several years. According to Finra, the amount of total registered broker-dealers has dropped about 10 percent in the past five years, from 5,029 in 2006 to 4,486 as of November. A majority of the downed brokers have been a result of the overall decline in equity trading volume, leading to tighter profit margins for many.

Founded in 1993, WJB Capital grew from 10 employees to 100 over the past decade and had offices in five cities. The company had been expanding as recently as early December, when it added four analysts. In its most recent report to the SEC, filed early last year, it posted $46 million in revenue and a modest $220,958 profit for 2010.

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