Three Hidden Broker-Dealer Profit Centers Exposed
From the March 2015 issue of Investment Advisor Magazine By Jon Henschen As our industry pushes for greater transparency, one area that remains largely opaque is broker-dealer profit centers There's nothing wrong with broker-dealers being profitable, but how those profits are obtained could use a good dose of disclosure. Representatives deserve to know that what they are paying is a true cost and what they are receiving is the best possible commission from a vendor. First, let's look at the profit centers that are relatively obvious to reps. In addition to the spreads broker-dealers receive from payout grids, there are two other primary sources of broker-dealer profit: revenue sharing and markup. REVENUE SHARING BETWEEN BDS AND VENDORS Revenue sharing happens between the broker-dealer and the product vendors, so it's of little concern to reps. For example,...
