The Financial Services Institute, the main trade group for independent broker-dealers, has opened its doors to independent branches of certain brokerage firms. FSI, which lost its largest member, LPL Financial Services, in March, announced Tuesday that among 15 new firms joining this year, three were large offices of supervisory jurisdiction (OSJs). All three are affilliated with LPL.

Welcoming the OSJ branches as full corporate members is a first for FSI. It comes at a time when the OSJ model, providing many services of traditional B-Ds but handing over regulatory supervision issues to larger brokerage firms, is becoming an increasingly attractive model for scaling fee-and-commission businesses. Today, more than a few OSJs are larger than hundreds of small- and mid-sized B-Ds.

Moreover, small B-Ds are finding that the costs of compliance and technology are mounting. With the looming implementation of the DOL rule, many are looking to merge. If this consolidation trend accelerates, FSI might see a decline in B-D membership over the next five years so the move made sense from their vantage point.

The group’s spokesman, Chris Paulitz, said the change was not specifically in response to the FSI losing LPL Financial as a member last March. He said the trade group has been discussing internally “for years” how to bring in owners of big OSJs.

LPL reportedly dropped its FSI membership over a fee dispute—as the nation's biggest independent B-D it maintained it deserved a volume discount for bringing FSI so many members. At the same time, LPL had a re-directed major resources to its own internal compliance, government relations and policy group and reasoned that this was a superior use of capital which it could leverage and exert more control.

Others believe LPL's decision was partially motivated by a disagreement with FSI over the DOL rule. LPL has essentially supported the rule while FSI has strongly opposed it.

“In the meantime, we have thousands of LPL advisors still paying individual dues,” Paulitz said.

Individual memberships cost $179 per year, while corporate memberships run from $2,000 to about $175,000 for the largest firms. The trade group is currently only accepting as corporate members those OSJs whose broker-dealers are not members of the FSI.

Notably among the new OSJ members is Private Advisor Group, a hybrid firm based in Morristown, N.J., and LPL’s largest OSJ with about 600 affiliated reps. “We wanted to get involved with FSI [as a firm]. It had nothing to do with LPL,” said John Hyland, co-founder of Private Advisor Group.

Hyland’s affiliated reps and staff have been active as FSI members, he said, but with many important regulatory issues brewing—the DOL rule the obvious one—it was important to get involved at the company level. The new corporate relationship “will allow us to be more engaged in conversations about our industry, and the solutions, with more representation in Washington,” he said.

The other OSJs joining FSI were Advantage Financial Group, of Cedar Rapids, Iowa, and Integrated Financial Partners based in Waltham, Mass. Paulitz said more OSJs will likely be joining. “A large number …  want to be involved in advocacy,” he said. Adding independent hybrid firms who run their own RIA firms in addition to a securities business will bring a wider perspective to the FSI, he added.

Concerns about the DOL rule have been driving membership interest. The FSI is involved in one of the lawsuits against the Department, but at the same time it has been developing tools to help B-Ds comply.

The group has more than 100 broker-dealer members, with the addition of another 12 B-Ds so far this year plus the three OSJ firms. New corporate members usually pay for a one-year individual membership for all their reps. That policy has swelled the ranks of individual advisor members, which now approach 40,000.

Adding OSJs could add to the advisor pipeline, but Paulitz wouldn’t put a number on the potential members affiliated with eligible OSJs.