ETF Trends
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.

“It’s incredibly complex and significantly different from the rule proposal in 2010,”  Adam Antoniades, president of Cetera Financial Group, said in the article. “It looks to promote client engagement that serves the best interest of clients. We, like the industry, applaud those efforts. The risk is unintended consequences. My guess is this will drive fee-based business.”

Additionally, the scheduled updated rules for nontraded REITs to take effect next April could impose new requirements on reporting estimated share values on account statements. So far this year, nontraded REIT sales are off to a slower start as rising rate risks pressure the performance outlook on real estate investment trusts.

iShares US Broker-Dealers ETF

For more information on brokerage firms, visit our broker-dealers category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.