HR Block 2005 Annual Report Download - page 73

OFFICE LOCATIONS ⬎⬎⬎ HRBFA is authorized to do business SEASONALITY OF BUSINESS ⬎⬎⬎ The Investment Services
as a broker-dealer in all 50 states, the District of Columbia and segment does not, as a whole, experience significant seasonal
Puerto Rico. At the end of fiscal year 2005, we operated fluctuations. The securities business is cyclical, however, and
257 branch offices, compared to approximately 358 offices in directly affected by national and global economic and political
2004 and 600 in 2003. The reduced number of branch offices is conditions, trends in business and finance and changes in the
primarily due to the evolution of our tax-partnering program, conditions of the securities markets in which our clients invest.
which now locates financial advisors in retail tax offices. At GOVERNMENT REGULATION ⬎⬎⬎ The securities industry is
April 30, 2005, we had 94 offices co-located with retail tax and subject to extensive regulation covering all aspects of the
mortgage offices. We believe the existence of these locations securities business, including registration of our offices and
contributes to our growth and client satisfaction. personnel, sales methods, the acceptance and execution of
COMPETITIVE CONDITIONS ⬎⬎⬎ HRBFA competes directly customer orders, the handling of customer funds and securities,
with a broad range of companies seeking to attract consumer trading practices, capital structure, record keeping policies and
financial assets, including full-service brokerage firms, discount practices, margin lending, execution and settlement of
and online brokerage firms, mutual fund companies, investment transactions, the conduct of directors, officers and employees,
banking firms, commercial and savings banks, insurance and the supervision of employees. The various governmental
companies and others. The financial services industry has authorities and industry self-regulatory organizations that have
become considerably more concentrated as numerous securities supervisory and regulatory jurisdiction over us generally have
firms have been acquired by or merged into other firms. Some of broad enforcement powers to censure, fine, issue cease-and-
these competitors have greater financial resources than HRBFA desist orders or suspend or expel a broker-dealer or any of its
and offer additional financial services. In addition, we expect officers or employees who violate applicable laws or regulations.
competition from domestic and international commercial banks The SEC is the federal agency responsible for the
and larger securities firms to continue to increase as a result of administration of the federal securities laws. The SEC has
legislative and regulatory initiatives in the U.S., including the delegated much of the regulation of broker-dealers to self-
passage of the Gramm-Leach-Bliley Act in November 1999 and regulatory organizations, principally the NASD, Inc., Municipal
the implementation of the U.S.A. Patriot Act in April 2002. These Securities Rulemaking Board and the NYSE, which has been
initiatives strive to remove or relieve certain restrictions on designated as HRBFA’s primary regulator. These self-regulatory
mergers between commercial banks and other types of financial organizations adopt rules, subject to SEC approval, governing the
services providers and extend privacy provisions and anti-money industry and conduct periodic examinations of HRBFA’s
laundering procedures across the financial services industry. brokerage operations and clearing activities. Securities firms are
Discount brokerage firms and online-only financial services also subject to regulation by state securities administrators in
providers compete vigorously with HRBFA with respect to states in which they conduct business.
commission charges. Some full-commission brokerage firms also As a registered broker-dealer, HRBFA is subject to the Net
offer greater product breadth, discounted commissions and more Capital Rule (Rule 15c3-1) promulgated by the SEC and adopted
robust online services to selected retail brokerage customers. through incorporation by reference in NYSE Rule 325. The Rule,
Additionally, some competitors in both the full-commission and which specifies minimum net capital requirements for registered
discount brokerage industries have substantially increased their brokers and dealers, is designed to measure the financial
spending on advertising and direct solicitation of customers. soundness and liquidity of a broker-dealer and requires at least a
Competition in the online trading business has become minimum portion of its assets be kept in liquid form. Additional
similarly intense as recent expansion and customer acceptance of discussion of this requirement and HRBFA’s calculation of net
conducting financial transactions online has attracted new capital is located in Item 7, under ‘‘Capital Resources and
brokerage firms to the market. Liquidity by Segment.’’
We compete based on quality of service, breadth of services See discussion in ‘‘Risk Factors’’ for additional information.
offered, prices, accessibility through delivery channels,
technological innovation and expertise and integration with our
tax services relationships.
H&R BLOCK 2005 Form 10K
11