By choice or circumstance, smaller brokerage firms like Stifel Financial ( SF) and SWS Group ( SWS) have maintained their independence. More importantly for investors, they have also outperformed the banking giants. These regionals may not have as much recognition as the mammoth securities firms -- Stifel's market cap is $962 million, SWS's market cap is $488 million -- but they won't be receiving as many unwanted headlines either. Like the big guys, regionals provide a range of services including financial advice, banking, asset management and fixed income and equity products. Of course regionals can't ignore the ravages of the recession, because their customers are just as frightened as are customers of the financial supermarkets. For the most part, however, they have avoided the severe stock shocks of jumbo names like Goldman Sachs ( GS) and the mishaps of financial supermarkets like Bank of America ( BAC) and Citigroup ( C). How have they managed to do this? Regional brokerages have done comparatively well thanks to healthy balance sheets and investment philosophies that are more conservative than those of larger financial institutions. "Although the private client business tends to be the marquee business segment from a revenue and recognition standpoint, capital markets and banking have grown in their importance to each firm's overall business mix," says a recent report by Keefe, Bruyette & Woods, which specializes in analyzing financial services firms and banks. KBW predicts the recession will take a toll on regional brokers as clients make fewer trades and investments. "As a result, commission- and transaction-based revenue will be lower than 2008's levels," the firm says. Low interest rates will cause a drop in net interest income in 2009 vs. 2008. Still, those strong balance sheets should help them grow. "We believe that they will continue to benefit from the fallout of the recent mergers at the large-cap wire houses," KBW says.