The number of broker-dealers operating in the U.S. has edged up in the past decade, while the growth in the number of “hybrid” brokers has exploded, now accounting for some 45% of all brokers, according to a first-ever snapshot of the industry compiled by the Financial Industry Regulatory Authority.

Hybrid brokers are dually registered as broker and advisor reps, but are generally regulated only as brokers—in other words, subject to a suitability standard and not a fiduciary standard that would require them to put investors’ interests above their own.

While the number of reps overall decreased some 23,000 to 630,132 between 2003 and 2017, the number of dually registered reps has rocketed to 286,799 and is quickly approaching the 50% mark, Finra found. The profitability of accounts with recurring fees rather than one-off commissioned-based securities sales is undoubtedly one driver of the phenomena.

Separately, some 56,472 brokers operate solely as investment advisor reps, according to “Finra Industry Snapshot 2018.” The number of broker-dealers registered with Finra increased from 31,659 to 33,325 as their revenues grew from $264,253.14 to $308,618.87 between 2013 and 2017, Finra reported.

The finding regarding the growth in hybrid rep numbers, however, is the real eye-opener in the report as the Securities and Exchange Commission considers a torrent of comments regarding its controversial “Regulation Best Interest” proposal. SEC officials said the proposal is designed to clarify the differences between brokers and advisors in investors’ minds. But critics contend it does not apply a fiduciary standard to hybrid reps, who offer advice and advisory accounts to retail customers without registering as investment advisors.

That point is being hotly debated by advisor and consumer groups that believe the SEC should require brokers who charge for advice to register as investment advisors or, at the very least, be regulated by a fiduciary standard.

The Investment Adviser Association recently offered a comment letter to the SEC on Reg BI. The association said that allowing brokers to offer and charge for a plethora of advice and advised accounts flies in the face of the narrow “solely incidental” exemption brokers were given by Congress in the Investment Advisers Act of 1940 and by ensuing court decisions.

“The commission should more appropriately define advice that is considered not to be ‘solely incidental’ to brokerage activities,” said IAA President and CEO Karen Barr. “All advisory activities that broker-dealers agree to provide a retail client, including ongoing monitoring for purposes of recommending changes in investments, should be covered by either Reg BI or the fiduciary standard,” Barr said.

The Consumer Federation of America is also advocating for the SEC to treat all brokers who offer advice—including hybrid advisors—as fiduciaries.

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