They are being squeezed by soaring regulatory and computerisation costs and the subtle shift in investment habits.
Peter Leonard and Peter Searight, two former fund managers who have acquired one of the oldest stockbroking firms, the 115-year-old John Siddall, believe that unless the more traditional firms adapt to the new fast-moving market they will "just fade away".
They believe they cannot, on the one hand, compete with the low-cost execution-only operations such as ShareLink and Skipton in the chase for private client business and will often find the bespoke financial services many of the more sophisticated investors now require difficult to accommodate.
Escalating costs are becoming a nightmare for many small firms. Indeed, it is alleged that some of the stockbrokers complaining bitterly about Crest, the computerised settlement system, have made life difficult for themselves by not fully updating their systems in a bid to keep costs down.
It has been something of a two-edged sword. By skimping on equipment they have incurred extra costs as their back office staff have worked long into the evening to handle the firm's dealing.
The long-term future of the half commission stockbroker, self-employed traders, may also be in jeopardy. These hardy individuals, in effect, share their commission with a stockbroking firm which provides office and back up facilities.
Messrs Leonard and Searight have not taken over John Siddall because they are attracted by its traditional stockbroking side. They are more interested in the firm's pounds 27m in PEPs; the pounds 37m in nominee accounts and the up to pounds 30m in the financial services division. Conducting discretionary accounts, providing financial services such as insurance and pensions, as well as PEPs and the rest, are their particular ambition rather than handling bargains for the professional punter.
Said Mr Leonard: "We are not at all interested in selling 250 Halifax for Mr Smith."
Although no-frill, execution-only brokers probably reaped rich rewards from the Halifax flotation, he wonders whether other firms did. He cites the John Siddall example. On the Halifax launch day it had 50 calls about the former building society but executed only four orders. "Such business is not worthwhile," he said.
He sees a successful small stockbroker getting more than 90 per cent of its income from offering various financial services with the remainder coming from the traditional broking business.
The former fund managers are behind Integrated Asset Management, formed to develop a wide-ranging financial services business for private client and smaller institutional investment management. Biggest shareholder and chairman is Ferdinand Lips, a high-powered Swiss banker.
IAM is buying Siddall for cash and shares. While the deal goes through its shares are suspended on AIM. They were floated last month when pounds 2.3m was raised. It will obviously need to make further acquisitions to fulfil its ambition to become a rounded financial group.
Nominee accounts for private clients are mushrooming following the arrival of Crest. Many private shareholders who wish to remain outside their stockbrokers' nominee system are being forced to pay extra.
Under the Crest system it is efficient for the stockbroker to lump its clients together in one anonymous computerised nominee shareholding.
Private shareholders, however, suffer. They are cut off from the subject of their investment. Annual reports, unless the stockbroker running the nominee account is prepared to oblige, no longer drop through their letter boxes. Dividends are often held back until the stockbroker thinks there is enough in the kitty to warrant the cost of sending the cash to the shareholder and such little joys as the occasional perk, or indeed the right to attend the yearly meeting, are lost.
Some companies are none too happy about being divorced from their shareholders. European Colour, the successful coatings and pigments group, resents the enforced change. It has more than 2,000 shareholders.
Finance director Nick Hawkins says EC has always endeavoured to keep in touch with its investors and maintain a profile of its shareholder register. But with more and more investors coerced into nominee accounts the link between company and shareholder is becoming increasingly difficult to maintain.
A hostile takeover bid could, quite clearly, be a nightmare for the defending company, which would only be aware of the identities of private shareholders still demanding paper settlement and a precious share certificate. Rallying the rest to its support could, therefore, be extremely difficult.
There is no suggestion of a takeover bid for British Steel, despite a modest share rally last week. The shares were, in fact, responding to hopes that year's profits, due today, would be very much at the top of the forecast range.
Such is the uncertainty about the steel maker's performance that estimates spread from pounds 380m to pounds 580m. The group is, of course, a casualty of the strong pound. As Nick Judge at NatWest Securities says: "With sterling having appreciated by 24 per cent against the German mark over the last 10 months this will have sufficed to more than offset any benefits gained from gradually rising prices." He expects pounds 465m. Last year, when such problems as the powerful pound seemed remote, BS achieved pounds 1.1bn.
Thames Water should keep utilities on a roll. Tomorrow it is likely to wade in with profits up around 20 per cent to pounds 385m accompanied by a hefty dividend increase, possibly up 22 per cent.
Others reporting year's results this week include Carpetright, with figures of pounds 32m expected against pounds 24.7m, and Hazlewood Foods, pounds 35.5m (pounds 34m). Half-time profits are due from Eurotherm, pounds 15.5m (pounds 18.7m), and Securicor, pounds 46m (pounds 51.1m).Reuse content