"The number outstanding in client accounts have gone down dramatically but still it was way more than we wish it were and we're trying everything we can to get clients restored to liquidity," Helck says. "It remains a problem until all those clients have 100% of their money back and we're working hard to make that happen."

The Regulatory Burden
As broker-dealers try to bounce back from a poor market that's sapped revenue, they meanwhile face a chilly regulatory environment as lawmakers scramble to curb the rampant abuses that led to the credit crisis and the Great Recession. A lot of these changes, say industry advocates, are going to pinch smaller broker-dealers the most, who they complain had little to do with Wall Street venality.

David Sobel, a director at the National Association of Independent Broker-Dealers, puts it this way: "Do you remember the Billy Joel song 'We Didn't Start the Fire'? Well that's about it. The small and medium size firms didn't start this debacle, and yet it's the small and medium size firms that are going to end up paying for it with overregulation, with additional expenses. All of these things which should have been done with a surgical strike rather than a Hiroshima kind of strike. They're killing small firms."

He notes that the fees B-Ds have to pay to help fund regulation are spinning out of control. In March, the Securities Investor Protection Corp. (SIPC) markedly increased assessments it charged to members from a flat fee of $150 a year to a whopping one-quarter of 1% of net operating revenues. FINRA, meanwhile, has doubled its personnel assessment fees. Firms with one to five registered reps and principals have to pay $150 for each person, double the amount from the previous $75, while firms with six to 25 reps now pay $140 per, and those with 26 or more pay $130 each.

Meanwhile, last summer new legislation emerged that could stop employers from designating their employees as independent contractors, a move that's mainly meant to attack abuses in other industries but one that could have unintended consequences for the broker-dealer world.

"In our world we have tax professionals that own their own tax practices," says Roger Ochs, president of broker-dealer H.D. Vest. "What that would mean would be that all the firms out there that have independent contractors ... those folks would be recharacterized as employees and that would totally change the dynamics of the whole industry."

And then there is the fiduciary issue. The Wall Street Reform and Consumer Protection Act of 2009 that passed in December calls for, among other things, a harmonization of fiduciary standards for financial advice providers, requiring all of them, whether they are RIAs or broker-dealers, to be held to the same standards of care under the Investment Advisers Act of 1940, even if they sell on commission. (Similar language was included in a Senate version.) When a broker-dealer rep sells proprietary products, he has to serve notice to each retail customer and obtain his consent or acknowledgment.

Broker-dealers have balked at having to adhere to a fiduciary standard that they say has several definitions under different laws and that doesn't respect their business model. They say being held to the same standard as their RIA cousins isn't fair because they are already well regulated (by FINRA).

The Financial Services Institute, a membership group for broker-dealers and advisors, had come out against the House bill before it passed. Dale Brown, the institute's CEO and president, says that raising broker-dealers to the '40 Act standard will favor one form of business compensation over another and have the unintended consequence of eliminating client choice or making some pricing out of reach of the smaller investor.

"For a single uniform standard to be effective, it's got to work for all client situations and across all business models," Brown says. "It cannot favor one form of business compensation method over another. In other words, it cannot have the unintended consequences of eliminating client choice or restricting or making pricing out of reach of the small investor."

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