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The global brokerage sector has evolved in the face of an array of headwinds, says Fitch Ratings.

The rating agency’s outlook for brokerage and independent advisory firms in 2020 is stable, thanks to “the industry’s progress in diversifying and adapting business models to become more efficient and resilient to ongoing structural challenges, including subdued securities trading volumes and competitive revenue pressures, particularly for retail brokers.”

Fitch said that the sector’s ratings are expected to remain stable in 2020 due to firms’ sound profitability, liquidity and leverage positions.

“Revenue diversification is becoming more critical for brokerage and independent advisory firms and while many firms have expanded into new areas, shifting competitive landscapes, slower economic growth and political uncertainty will challenge performance,” Evgeny Konovalov, director at Fitch, said in a statement.

Against this backdrop, Fitch said that it expects industry consolidation to continue as well.

For instance, it noted that the retail brokerage sector is seeing increased pressure on commissions and fees, which makes scale more valuable — and may also step up competitive pressure.

If a Charles Schwab/TD Ameritrade merger goes ahead, Fitch says, “smaller retail brokers may get squeezed further on pricing. In addition, asset managers may also have to pay more for distribution.”

At the same time, Fitch reported that full service brokers have expanded their advisory and underwriting businesses.

“Such activities are cyclical, but tend to be more stable relative to trading income and provide moderate diversification to earnings with limited balance sheet risk,” it said.

Fitch said it expects M&A volumes to remain “relatively high” for independent advisory firms in the year ahead.

“Middle market deals, where independent advisory firms typically have a competitive advantage, is expected to show higher growth potential driven by financial sponsor activity and the deployment of the substantial capital they have raised, and will likely favor advisory firms, which have established sponsor relationships,” Konovalov said.