The Challenges Facing Brokerage

The securities industry is challenging turf. During the last decade, the markets have undergone numerous crashes and rallies. That volatility has prompted countless investors to flee, and many of those who have not fled, now wish that they had. Managing a brokerage business in this turbulent environment has become, to say the least, extraordinarily tough.

The usual regulatory changes, this time driven by Dodd-Frank and other SEC rulings, have beleaguered brokerage firms. Shrinking demand and increased competition have squeezed profit margins. Customer confidence is at an all-time low; tumultuous markets have many investors thinking that a 0.04 percent rate of return on a one-year CD sounds pretty good.

Outsourcing has not been utilized as much in the brokerage space as in other financial services businesses, in large part because securities transactions are so regulated, time sensitive, and complex. However, cost pressures and market volatility are now forcing companies to look outside their walls for help. Consulting companies and outsource providers, meanwhile, are working hard to find ways to support brokerage clients, by introducing them to new technologies, industry best practices, and variable pricing models. Most of the brokerage companies contacted by HfS Research either have implemented an outsourcing model in the last couple of years or are aggressively looking at available options as at least one answer to their many challenges.

In this RAPIDInsight, HfS Research examines the specific challenges facing brokerage companies and how these firms are leveraging outsourcing service providers to remain competitive. We look at the advantages brokerage firms can generate through different outsourcing models and we profile two providers that are demonstrating value in this space.