FINRA: Broker numbers up for first time in years

Sign outside offic eof Financial Industry Regulatory Authority
A sign outside the Financial Industry Regulatory Authority office.

The number of people joining the brokerage industry increased for the first time in several years in 2022, driven by wealth managers joining both pure-play broker-dealer firms and hybrid outfits with an advisory arm.

That's according to the Financial Industry Regulatory Authority's latest industry snapshot, released on Thursday. The number of registered representatives at brokerages rose to 620,882 in 2022, up from 612,435 the previous year. Although that was only a modest 1% increase and the 2022 total came in below the 629,475 registered reps recorded in 2018, it still marked the first time the figure had climbed in at least the five previous years.

Increases were seen in both the number of firms registered solely with FINRA, the broker-dealer industry's self-regulator, and so-called hybrid outfits with advisory arms also registered with the Securities and Exchange Commission. The number of pure brokerage firms rose 304,867 to 308,565 from 2021 to 2022 and the number hybrids went from 307,590 to 312,317 over the same two years.

Meanwhile, the total number of firms registered with FINRA continued to decline, suggesting consolidation remains an industry trend. That figure came in at 3,378 in 2022, down from 3,394 the year before.

By contrast, the number of pure advisory firms registered with the SEC or states continued its steady rise, suggesting that fee-only and similar business models remain popular among wealth managers. That figure went from 30,889 in 2021 to 31,669 in 2022.

"The RIA model continues to gain traction, especially amongst the younger generation of advisors," said Mark Elzweig, the president of Mark Elzweig Company, a consultancy for financial advisors. 

Those were just a couple of the takeaways from FINRA's report. Here are a few others.

How you slice it

FINRA's industry snapshot broke down the individual representatives by the size of the firms they worked at and their ages. Not surprisingly, most were likely to work at large firms, which FINRA defines as having 500 or more registered representatives. Roughly 83% of all reps, or 524,075 people, did so in 2022. 

Jon Henschen, the founder of the Henschen & Associates industry recruiting firm, said the number of people entering the industry slowed significantly during the COVID-19 pandemic and related lockdowns. It's not surprising, he said, that large firms have since emerged as the industry leaders in many ways.

"The larger firms' ability to offer considerably large transition notes along with a greater variety of services gives them a clear advantage on the recruiting front," Henschen said. "Larger firms are also more active in acquisitions of broker-dealers which accounts for a large portion of their growth."

By contrast, only 50,866, or 8% of the total, worked at medium-sized firms with between 151 and 499 representatives. And 62,076, or 9.7%, were at small firms with 150 or fewer reps. The number working at large firms rose by nearly 3% between the two years, whereas the figures for both medium-sized and small outfits both showed decreases. 

"Many smaller broker-dealers have had a tough go of it," Elzweig said. "Ever-escalating compliance and technology costs have proven challenging for many smaller broker-dealers."

Even though large firms employed the greatest number of representatives, they were relatively few in number. There were only 165 large firms in 2022, up barely from the 161 recorded the previous year. Small firms were far more prevalent, with a total of 3,021 in 2022. The number of medium-sized firms came in at 192.

Voting with their feet

After a string of years when the number of people leaving the industry topped the number coming in, that trend was reversed in 2022. The 38,236 representatives who departed in 2022 were outpaced by the 46,683 who joined. The last time more people entered the brokerage business than left was in 2015, when the 47,035 newcomers managed to make up for 43,776 departures.

Firms also opened more branch offices than they closed for the first time in many years. Brokerages and hybrids had 18,094 new branches in 2022, more than offsetting the 17,334 they closed. The last time the number of new offices outpaced closings was in 2014, when 17,522 were opened and 16,544 were shut down.

The total number of firms entering the industry, meanwhile, continued to be outpaced by departures. FINRA's report found that 116 firms opened their doors for the first time in 2022 and 132 shut down.

Location, location, location

The four states with the greatest numbers of registered representatives were California, New York, Florida and Texas, each of which had more than 300,000 in 2022. 

The states with the most branch offices were nearly identical: California, New York, Florida, Texas, Illinois, Ohio and Pennsylvania. And New York state remained the most likely place for a firm to have its headquarters, with 951 principal offices in 2022. 

But the number of firms registered in three strongholds of the brokerage industry — New York, Connecticut and New Jersey — has been on a downward trend. In 2012, 1,495 had their main offices in those three states. By 2022, the figure had dropped to 1,207.

Long in the tooth

As has long been noted, the average age of brokers has been on the increase as relatively few young recruits come in to replace retirees. FINRA's latest snapshot furnished no reason to believe that trend has changed. Using slightly older data, the report found that less than 10% of advisors were in the 25 to 29 age bracket in 2020, whereas nearly 15% were in the 50 to 54 bracket.

In a report from June 2022, the research firm Cerulli estimated 37% of financial advisors overseeing $10.4 trillion in assets would retire in the following 10 years. One in 4 of the planners surveyed said they were unsure about their succession plans.
MORE FROM FINANCIAL PLANNING