Regionals Suffer One-Two Punch


New York, NY – In the past few years, the aggressive promotion and increased use of Commission Sharing Agreements and Client Commission Arrangements in the US has led directly to increased concentration of equity trading, as institutional clients have reduced the number of execution partners they do business with.  Consequently, many larger trading firms have gained market share at the expense of the smaller regional firms.  However, this consolidation is not just taking place with institutional equity clients.  In fact, a similar shift is being seen at regional broker-dealers as retail clients migrate either to the big wirehouses or to the growing number of independent brokers.  As a result, many of these firms are simultaneously fighting a migration of both institutional trading revenue and retail brokerage commissions – a one two punch that is leaving many regional brokerage firms reeling.

The following article, written by Donna Mitchell of, discusses the various trends that have plagued regional broker-dealers who serve the retail investor community.



The Vanishing Regionals

After spending 11 years shying away from the energy business, Houston-based broker-dealer Sanders Morris Harris now embraces this geographic niche for prospective wealth management customers.

For the first decade that the firm was in business, so many Houston natives grew wealthy from energy (or inherited their money from someone who did) that Sanders carefully avoided that market segment so it wouldn’t become synonymous with just one industry. Instead, the firm wanted to be a broad-based service provider for an ultra-rich clientele.

But in more recent years, that strategy changed for several reasons. First, by 1998, Sanders’ client base had expanded from ultra-wealthy investors with an average net worth of $10 million to include more mass affluent customers. Also, its footprint had extended beyond its Houston home and many of the new clients did not have oil coursing through their veins. And finally, as luck would have it, oil was on the cusp of a major boom.

In a very real sense, Sanders exemplifies the plight of the regional firms. Like the middle child in a family, regionals are trying to catch the attention of clients while stuck between the big wirehouses and the independents.

The days are gone when regionals may have been able to compete head-on in a particular location with their bigger counterparts. Now, in order to survive, they have to act more like boutiques by picking a segment and specializing, according to some industry experts.

Indeed, it’s a heightened focus on energy that has helped Sanders stay competitive while much of the regional channel endured consolidation and defection.

But specializing may not be enough. Opinions vary on the health of the regional market. But make no mistake; there are some dire forecasts that predict the end is nigh.

“The regional firms are dead. There will never be a regional firm again,” says Chip Roame, a managing principal at Tiburon, Calif.based research firm Tiburon Strategic Advisors. For starters, regionals lack the breadth of product offerings, as well as marketing and technology budgets available at larger financial services firms. For instance, marketing an investment product to a potential client would cost a regional brokerage firm about 15 times what it would at a wirehouse, Roame says.

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