The IBD business model is predicated on the idea that as you build up the business, brokers are going to build assets and from those assets will come cash, Hintz says. The b/d then makes money from the cash management products the firm offers, and it should result in margin expansion over time.

But in today’s environment, margins are thin. Before the crisis, small b/ds, with less than $50 million in annual revenue, had EBITDA margins of about 2 to 4 percent, while mid-sized firms had margins of about 6 to 8 percent, says Keith Gregg, CEO of IEP Financial, a hybrid b/d and RIA platform. Today, most small broker/dealers are running on average EBITDA margins of 1.83 percent, while mid-sized firms—those with between $50 million to $100 million in revenue—have EBITDA margins between 2 and 4 percent.

So what happened? For one, Hintz blames the shift from mutual funds to exchange traded funds and index products, free riders on the distribution of every retail brokerage operation. Because they’re no-load, passive vehicles, b/ds don’t collect the same fees for distributing index products as they do from selling mutual funds.

And it’s taking longer for the retail investor to get back into the stock market, another hit to the revenue of IBDs, says Hintz.

“This timidity that you and I see every day in terms of the retail investor, and we see it in asset management firms, we see it in Charles Schwab’s numbers, we see it in LPL’s numbers,” Hintz says. “It’s hurting everybody.”

New money flows into retail brokerage accounts are highly correlated to nonfarm payroll, Hintz believes.

“If you’re worried about your job, you’re going to prefer liquidity to anything else.”

In other words, the biggest market risk for retail investors is unemployment, and that risk doesn’t drop until they’re confident that they’re going to remain employed. Hintz doesn’t expect that to happen until 2014, at least.

At the same time, interest rates are near zero, so whatever revenues b/ds were earning from money market funds and cash accounts are gone. Money market revenue is typically not shared with the rep; it falls to the firm’s bottom line, says Jon Stern, managing director at New York-based private investment bank Berkshire Capital, who specializes in investment management and broker/dealers.

And it’s not a small chunk of change. Money market revenues used to make up about half of a firm’s revenue, says Jonathan Henschen, president of the recruiting firm Henschen & Associates. Now, it’s next to nothing of their revenue.

“When you have multiple years where revenues are not jumping back up, a lot of change is happening, and you react to it with low revenues, you’re totally under stress,” says Alois Pirker, Aite Group research director.