Brokers fear that oblivion beckons

Why should it be the big banks that are given free rein to exploit this growing market?

Isthe independent high-street stockbroker an endangered species? That is the question asked by other retail brokers, who say the industry is being strangled by a welter of regulations and over-onerous capital adequacy requirements.

Last year Brussels introduced the Investment Services Directive, which further increased the capital burden on private-client stockbrokers. For those brokers owned by big financial institutions, the implications are less bothersome.

Paul Killik, founder of the private-client stockbroker Killik & Co, says small independent brokers now find it harder to grow, and even harder to get off the ground: "How many have started up in the last few years? Very few, it would seem, at a time when the demand for such services has never been higher, or more necessary."

Howard Shore, of the private- client stockbroker Shore Capital, believes a start-up is all but impossible unless the company has a substantial existing client base to provide economies of scale. He says it is not just the capital requirements - at least pounds 500,000 for a start-up - that weigh heavily; these would be only a fraction of the total cost once investment in IT and infrastructure is added in.

Shore Capital has now diversified from its roots in private-client business and operates a profitable corporate finance arm.

The experience in the UK is very different from that in the US, where retail stockbrokers sprout up in every shopping mall and main street. As well as big players such as Merrill Lynch - whose retail coverage of America is legendary - there are countless independent brokers, with offices running from 40 or 50 branches to several hundred.

One reason for this is cultural. Although the US Securities and Exchange Commission is one of the most stringent stock market regulators in the world, its capital requirements are undemanding: the minimum amount needed for a stock-broking start-up is $25,000 (pounds 15,625).

Nor is there the duplication of capital requirements that occurs in the UK. Killik & Co, for example, has to meet the requirements set out by the Securities and Futures Authority even though it uses a separate organisation to sort out all its client monies, back-office affairs and settlement, which is traditionally seen as the area of greatest risk for any broker and its clients.

Killik & Co's back-office function is handled by Pershing, a specialist US firm, which in turn also has to meet the capital adequacy requirements of the SFA. Pershing has also taken out a separate insurance policy which will pay its client up to $5m (pounds 3.2m) on any one trade that goes wrong.

Trevor Jones, chief operating officer of Pershing, agrees that the regulatory framework inhibits entrepreneurial spirit. The freedom to branch out on your own has been curtailed.

Yet the potential decline of the independent broker takes place at a time when more and more people are becoming shareholders. This year alone the demutualisation of building societies and insurance companies is likely to create 17 million new shareholders, adding to the 6 million or so created as a result of the privatisations.

Meanwhile, investment initiatives such as personal equity plans have created a wider share-ownership base among individual savers.

And yet, as Matthew Orr, a managing partner of Killik & Co, asks, why should it be the big banks that are given free rein, with their deep pockets, to exploit this market?

In response to these fears, Ros Wright, general counsel for the SFA, says: "How very odd. It is not what I hear. Our rules are designed to provide clients with the maximum protection while affording as much flexibility and freedom as possible to our members." Many members disagree; whether there is a future for the independent stockbroker remains to be seen.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower