Despite lackluster sales in 2014 of commission-rich products such as variable annuities and nontraded REITs, the leading independent broker-dealers managed to squeeze out double-digit revenue growth in line with the broad market. Twenty-one of the top 25 IBDs that reported revenue for sales of alternative investments suffered a year-over-year slump. Prospera Financial, The Investment Center, Questar Capital and Cambridge Investment Research are the 2014 Broker-Dealers of the Year. Running an independent broker-dealer of any size has never been easy, but the turmoil surrounding the IBD industry has been particularly acute over the past year, marked by a steep upswing in industry consolidation, an increase in affiliation options for reps and a greater regulatory burden.

One of your top-producing reps has asked that an alternative investment be added to your approved list. The declines, which averaged 15%, came after particularly strong sales in 2013 of nontraded real estate investment trusts and other alternatives, brokerage executives noted. On average, revenue from investment products and services that charge a fee rather than a commission increased 20% in 2014 for the top 25 IBDs, reflecting the long-term trend in the financial services industry. Those include the recently released Department of Labor “definition of fiduciary,” which could have an impact on the way broker-dealers do business with small retirement plans and individual retirement accounts. Another concern is the potential impact on sales of nontraded REITs from industry rules scheduled to take effect next April that impose new requirements for reporting estimated share values on client account statements.

But sales of Cole-branded products have practically come to a halt since the end of October, when its parent company, American Realty Capital Properties Inc., revealed a $23 million accounting error in the first half of 2014 that was intentionally left uncorrected. The results of that conversation can be found in the September 2014 cover story of Investment Advisor magazine, along with additional content, including video interviews with those leaders, that will appear on the 2014 Broker-Dealer of the Year home page on ThinkAdvisor.

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