There’s an old expression about investing. “The markets usually accommodate the least amount of people”. What does that mean? When everyone is buying, maybe you should be selling. When everyone is selling, maybe you should consider buying. Think back to the dot-com mania of the late "90s". Everyone was buying any stock that had a dot-com in its name. Who got accommodated? The sellers!!! How about the real estate mania of 2006-2008? Investors couldn’t buy enough houses or condos. Who got accommodated? The sellers!

For the past few years there has been a decline of Independent Broker-Dealers in the United States. Many smaller firms are selling out to larger rivals. And the number of new start-up broker-dealers continues to hit new lows. There are a number of reasons why this is happening. Record low interest rates make buyout activity more affordable for the larger broker-dealers and insurance companies. Since the peak of the financial crisis in 2008-09 there has been a heightened regulatory environment which has created a larger financial burden on smaller broker-dealers. Probably the most significant factor in the reduction of smaller broker-dealers is the government legislation commonly known as Dodd Frank. This was an 850 page piece of legislation passed by Congress in 2010 to create financial reform. Its purpose was to never again have a banking institution that was “too big to fail”. The prevailing opinion by financial experts is that it did not succeed and there are still banking institutions that would require government assistance if another 2008 type crisis were to reoccur. Why would this create an investment opportunity?

There is a new Republican controlled House and Senate beginning in 2015. One of their goals is to reduce the high level of regulation in bills such as Dodd Frank. If they are successful in doing so, the financial burden on broker-dealers should decline. This should create a great opportunity for smaller broker-dealers as the number of firms competing in the small b-d space has been dramatically reduced over the past five years. Larger broker-dealers promote their own in house products. Insurance owned broker-dealers promote insurance products. This opens up an opportunity for smaller broker-dealers to sell products that the public may want but can’t get at the larger or insurance owned broker-dealers. A case in point is lower priced stocks. Most large firms will not allow their customers to buy stocks trading below $5 per share. A smaller broker-dealer might create a niche in this market.

For someone interested in starting a new broker-dealer, it is not difficult. The owners or principals must be able to satisfy the background requirements of the financial regulator, FINRA. From that point on, we can provide the assistance to get the new entity up and running as we have all of the necessary licenses required by FINRA.