The Decision to Own or Outsource a Broker-Dealer

The Decision to Own or Outsource a Broker-Dealer (March 2022)

For the select group of firms that are the right size to consider their own BD, this is one of the most critical and practically permanent strategic decisions they will face. Investment programs are facing mounting pressure to demonstrate their value to their firms. After modest revenue growth during the last few years and expense reduction efforts having run their course, limited levers remain to improve profitability. The rapid pace of regulatory change, risk management concerns, and the need for technology and operational investment all present challenges that are causing some firms with their own broker-dealers (BDs) to question whether they want to continue to operate on their own or outsource to a third-party broker-dealer (TPM).

When firms begin to look at what drives profit contribution, they have found themselves in a catch-22, where they are less competitive in their technology platform relative to the competition, but making the technology investment needed to get to par would make the business even less desirable from a return perspective. Complicating that is making monetary investments in this environment when a clear and compelling risk/return tradeoff cannot be immediately demonstrated. When profit contribution, technology investments, and risk management are looked at together, the question of what the best growth model is becomes that much more complex. What factors should you consider when determining whether retaining your BD and utilizing a clearing firm or outsourcing to a TPM is the right model for your firm?

LPL Financial Institution Services commissioned Kehrer Bielan to detail the differences we see in the two models and what is most important to consider when making that decision.

This complimentary report highlights:

  • Technology, regulatory, and financial decision points between the two models, and;
  • The potential impacts to clients and advisors.