FINRA executives said the firm expects to report a financial loss from operations for the current year, and will gradually raise fees on member firms starting next year, according to reports released by the agency last Friday
In addition to the budget summary, FINRA released its annual industry snapshot, which showed the total number of FINRA-registered representatives continued its steady decline in 2020.
FINRA's annual operating revenues are projected to be $924.2 million in 2021, a decrease from 2020. FINRA says higher trading volumes and a larger number of public offerings boosted revenue in 2020.
Additionally, a one-time voluntary retirement program implemented in 2020, as well as the drop in travel and in-person testing and inspections by FINRA staff due to the COVID-19 pandemic, all contributed to lower operating expenses. The agency expects those expenses to increase by about 3.5% in 2021 from the prior year as headcount and in-person visits rise during the course of this year.
FINRA said it relied on budget reserves rather than fee hikes to cover deficits in previous years, and it expects to draw down its reserves by more than $187 million in 2021. Regulatory fees were expected to make up 48% of the agency’s 2021 cash flow and the agency plans to phase-in increases to those fees between 2022 and 2024. FINRA CEO Eileen Murphy and Robert Cook first announced plans to raise the member firm fees (and the reasoning behind doing so) in an October notice to firms.
“This delayed phase-in period ... is intended to provide time for member firms to plan accordingly and will be enabled through the continued use of our excess reserves, as described above,” the summary read. "FINRA remains committed to appropriately managing its finances to support our mission."
Meanwhile, the agency’s industry snapshot showed the continuation of several long-term trends. The number of FINRA-registered reps fell by more than 7,000 between 2019 and 2020, with the total number standing at 630,525 last year (comparatively, the agency counted 646,105 total reps in 2016).
Though there are still more reps that are solely classified as broker/dealers, the gap between the number of b/ds and dual registrants continued to close. As of the end of 2020, there were 317,936 registered b/ds, compared with 299,613 dual registrants. Comparatively, there were 379,833 b/ds in 2011, compared to 247,234 dual registrants. The number of investment advisor representatives grew slightly in 2020 to total 69,482.
Both the total revenues and expenses for FINRA-registered firms fell from 2019 to 2020; expenses dropped from about $344 billion to nearly $285 billion, while revenues went from just above $388 million to slightly below $362 billion, according to the snapshot.
