Trading Volatility Helps Lift Broker-Dealers ETF | ETF Trends

Independent broker-dealers generated double-digit revenue growth in 2014, and a broker-dealer- related exchange traded fund is outperforming in the financial space so far this year.

Over the past three months, the iShares US Broker-Dealers ETF (NYSEArca: IAI), which tracks U.S. investment banks, discount brokerages and stock exchanges, has increased 7.8%, compared to the 2.5% gain in the broader Financial Select Sector SPDR (NYSEArca: XLF). Year-to-date, IAI was up 0.7% while XLF dipped 1.5%.

The 25 largest independent broker-dealers generated a 10.3% year-over-year rise in revenue over 2014, reports Bruce Kelly for InvestmentNews.

Top independent broker-dealers include LPL Financial LLC (NYSE: LPLA), which garnered $4.3 billion in revenue, and Raymond James Financial Services (NYSE: RJF), which added $1.6 billion. IAI includes a 3.4% tilt toward LPLA and a 4.7% weight in RJF.

The industry is experiencing an increase in fees. Revenue from investment products and services that charge a fee instead of a commission rose 20% in 2014 among the top 25 independent broker-dealers, mirroring a growing trend in the services industry.

Furthermore, among the largest banks, trading revenue has increased as financial market volatility bolstered dealing room profits, Reuters reported. First quarter earnings results from the five leading U.S. banks and Credit Suisse in Europe revealed that revenue from fixed income, currencies and commodities (FICC) almost doubled from the previous quarter to $17.1 billion.

Industry experts are optimistic about growth for this year, but raise some concerns. For instance, the Department of Labor’s recent update on the “definition of fiduciary” could impeded the way broker-dealers do business with small retirement and individual accounts.