While sources of revenue are drying up, these firms also have to deal with increased costs associated with compliance and technology. In the last couple years, FINRA has tightened up its supervision requirements, raising broker/dealer back-office compliance expenses by about 25 to 30 percent, Henschen says. For example, FINRA has increased its net capital requirements, or the minimum amount of capital b/ds are required to set aside.

“Capital that [firms] can use to help their reps with things, they’re having to devote it to additional compliance department costs,” Henschen says.

On top of that, last year FINRA raised its new member application fee to $7,500 for small firms with up to 10 registered reps, and to $55,000 for large firms with over 5,000 reps. The processing fee for new member applications went up from $350 to $500. And then there’s that additional $5,000 surcharge for new member firms that want to conduct clearing and carrying activities. Sounds like small potatoes, but it adds up. 

Other fees have also been increased in the last year, including the branch office annual registration fee, central registration depository fees, advertising, and corporate financing fees. FINRA now assesses a new fee on continuing membership applications, including any time a firm wants to add a new line of business or change ownership.

“It’s the smaller guys that are getting hit with the overregulation, all the price increases that have taken effect from the regulators,” says David Alsup, director of business development at The Compliance Department. “It’s stifling a small firm from being able to widen their band of product offerings.”

In addition to compliance costs, there’s also the rising cost of technology. Because of the competitive recruiting environment, advisors can demand more from their firms, including a more robust technology platform, says Jodie Papike, executive vice president at Cross-Search.

“There is a lot of demand for quality advisors and not enough supply, and that always creates an environment where advisors can expect more,” she says.

In fact, 41 percent of advisors said technology was the most important factor that would cause them to look for a new b/d.

Reps are looking for a centralized, web-based platform with a good customer relationship management system, says Henschen. They also prefer a paperless system with electronic signature capabilities.

“Certainly the smaller broker/dealers are getting hit really hard because they’re dealing with all the same regulation issues and the increased costs that the larger firms are, but they’re not able to put money into technology and other areas that the larger firms are,” Papike says.