If Congress votes to hold brokers to a fiduciary standard, some securities firms could face 4% to 10% declines in profitability per broker, according to a research note issued today by Ticonderoga Securities LLC.
Ticonderoga analysts Douglas Sipkin and Warren Gardiner said that among the brokerage firms they cover, Stifel Financial Corp. could take the biggest hit if financial-reform legislation pending in Washington ultimately requires brokers to adopt a higher standard of care.
Stifel's per-broker profitability could be hit by up to 10%, the report said, because only 20% of its retail revenue is fee-based.
Morgan Stanley and Raymond James Financial Inc., whose brokers get closer to half their revenue from fees, could see drops of 4% to 7% per broker, the report said.
The estimated declines relate only to individual broker profitability, not the firms overall.
"It's an issue that will impact every broker-dealer that has private clients," acknowledged Ron Kruszewski, chief executive of Stifel Financial Corp. But he added that "it's awfully premature to be estimating the impact, without a final [reform] bill."
Spokespersons for Raymond James and Morgan Stanley were not immediately available for comment.
In prior reports, Ticonderoga has said a fiduciary standard could make it more difficult for brokers to sell investment products, such as a mutual fund with higher fees than ETFs.
“Combined with battered retail confidence, [the] outlook for retail [securities firms] is negative,” the report said.
Supporters of a fiduciary standard have said brokers would not be limited as to what products they could sell as long as sufficient disclosures to clients were made.
At the moment, the fiduciary debate between House and Senate negotiators appears to have hit a standstill.
(See story.)
