Paying the Price

Like the up-and-down market, business for B/Ds off

Arising tide floats all boats, and the same might be said for the fee-based advisory business. But now that the market tide has been ebbing, will everyone run aground?

It depends. As part of our annual survey of broker/dealers that offer fee-based services (which begins on the next page), we asked the leaders of several independent B/Ds to tell us how their businesses were doing.

According to Jerry Singleton, president of Signal Securities in Forth Worth, the fee-based business is still rising, albeit slowly. "Not earth-shattering," he says. But he cites last year's market as a factor, and sees as well a progressively more educated consumer. "Their [clients'] concern has been, in low-activity accounts in the $50,000-$100,000 range, that strictly from a dollar-cost standpoint they may be better off in a commission-based account," says Singleton. "The fees go on and on whether they're doing anything or not." However, notes Singleton, "Higher-net-worth accounts that use equities primarily tend to recognize that they need more hands-on, ongoing account attention." Things like account review on an almost daily basis count for more than the cost comparison of fee to commission, Singleton says. And in these cases, fee wins out.

Jay Lanigan, division executive of the Client Group of Fidelity Investments Institutional Brokerage Group, concurs that the higher-net-worth client is the one with the least resistance to fees. "Most of them are looking for a range of services that transcend the typical relationship with a broker, RIA, or the like," he says. Toward that end, Fidelity is looking at adding more wealth management solutions to its offerings, Lanigan says, declining to be more specific.

Over the last two years the growth curve of commission accounts moving to fees has been flat, says Singleton, with growth primarily in the higher-net-worth accounts. "When you think about it," he says, "from the fee-based advisor's viewpoint, that's probably a good thing." The lower-balance accounts don't generate cost-effective fees.

Roland Brecek, president of Brecek & Young in Folsom, California, on the other hand, sees lots of growth in fee-based activity. And due to its recent acquisition of Donahue Securities in Cincinnati, Brecek & Young even offers a broader array of fee-based services, including asset-based programs for retirement accounts and investment advisory services for higher-net-worth clients.

Art Grant, president of Cadaret, Grant in Syracuse, New York, says that he's seeing more stability in the commission side. One of the B/D's planned improvements for last fall--an account offering unlimited trades for a fee--is no longer on the schedule. "There's less enthusiasm for trading individual stocks," says Grant. "People are more long-term-oriented; they don't need a flat fee for unlimited trades. Traders have disappeared, and that is a positive thing." And, he says, the business has never been stronger, because "clients recognize the value of having an advisor."

But for your standard-issue commission broker, business may not be so good. Skip Schweiss, vice president of DATAlynx in Denver, tells of an old friend who has been a commission broker for many years. "He is singing the blues every bit as much as fee-based planners are."

But a top executive at one independent, mid-sized B/D who wishes to remain anonymous said his company's fee business is down by about a third, due in part to reps giving in to client demands to buy market darlings rather than the more cautious, traditional asset allocations. This same executive also shared a cautionary tale. A client who'd bought a high-flying tech stock nearly a year and a half ago is now trying to claim that the rep executed an unauthorized trade, despite the fact that the client had written out a check a few days after the transaction for the exact amount of the trade, and has received monthly statements since. The executive researched the claim, and was able to back up his rep with records--a clear demonstration of the need to keep meticulous paperwork about recommendations, orders, and client demands.

Tough times indeed. Whether the tide is coming in or going out, make sure your boat stays afloat. --MYS


1: Asset allocation; 2: Custodial services; 3: Fee-based B/D; 4: Fee-based clearing; 5: Advisors need own RIA; 6: Advisors can use own RIA; 7: Securities license not required

*Custodial services offered through clearing firm(s)


A: Advertising materials (slicks, radio ads, etc.); B: Support staff; C: Documentation; D: Conferences/workshops/seminars; E: Reporting; F: Presentations/

proposals/assistance; G: Brochures; H: Marketing materials (direct mail, sales ideas, etc.); I: Comparative account analysis; J: Internet/online services;

K: Newsletters/magazines; L: Product updates; M: Product wholesaler contact; N: Public relations; O: Software; P: Training; Q: Videos; R: Others

OTHER ABBREVIATIONS: Bps: Basis points; NA: Not applicable; NTF: No transaction fee; Client mgd: Client-managed accounts

Fee advisors served/Assets/ (billions) Services Provided Mutual Funds Offered (cost/trans.) Accounts offered (costs) Data Download Cost Compatable Software Online Trading Cost Research Service Sales and Marketing Support Services to be Introduced in 2001
The Advisors Group o Bethesda, Maryland o 800-777-1500 o
200+/$0.70 1, 2*, 3 2,000+ (NTF) IRA ($40)

Cash mgmt. ($0)

Wrap accts. (0.5%-2.0%)

Client mgd. (0.5%-2.0%)

NA Advent Axys, Excel, MaXXBroker Included Argus, Bloom berg, DLJ, Ibbotson, Mor ningstar, Prudential, S &P, SEI, Zacks B, C, D, E, F, G, H, J, K, O, P NA
Ameritrade Institutional Services o Omaha, Nebraska o 866-268-3247 o
104/ $0.12 1, 2*, 3, 4, 5, 6, 7 9,000+ (Varies) IRA ($0)

Cash mgmt. ($0)

$0 Broker's Ally , Captools, Centerpiece, dbCAMS, Excel $8.00 Lipper NA Advent interface; NTF program; wrap accts.; RIA referral program; enhanced research; institutional Web-based infrastructure
Assante Asset Management Inc. o San Jose, California o 800-366-7266 o
375/$1.60 1, 3, 4, 7 6 (Varies) Wrap accts. ( Varies) $0 Advent Axys, Captools, Centerpiece, dbCAMS, DST Fanmail, Security APL $0 Bloomberg, Ib botson, Lipper, Mobius, Morni ngstar B, D, E, F, G, H, I, J, K, L, M, N, O, P Synervest Private Client Phase I
Associated Securities Corp. o Los Angeles, California o 800-284-2747 o
150/$1.0+ 1, 2, 3, 6, 7 11,000+ ($0-$20) IRA ($0-$35)

Cash mgmt. ($0-$75)

Wrap accts. (0.25%-1.0%)

Client mgd. (0.25%-0.75%)

$0 Advent Axys, ASCII, Broker's Ally, Broker's Notebook, Captools, Centerpiece, Datamax, dbCAMS, DST Fanmail, DST Vision, Excel, Financial Profiles, Foundation, Portfolio 2000, Trinity, Vision 2020, Wilson $0-$20 Argus, Bear S tearns, Bloomberg, Bridge, CDA, DLJ, Dow Jones, Emerald, Firs t Call, Hoover, Internal Rsrch ., Lipper, Market Edge, Marketscope, Micropal, Morningstar, Pershing, Prudential, PSN, Reuters, S&P,, Value Line, Vickers, Wall Street B, C, D, E, F, G, H, I, J, K, L, M, O, P Web-based streamlined separate account wrap program
H. Beck Inc. o Rockville, Maryland o 800-333-6884 o
120/$0.15 1, 2, 3, 4, 6 5,000+ ($0-$30) IRA ($35+)

Cash mgmt. ($0-$150)

Wrap accts. (Varies)

Client mgd. (Varies)

Varies Advent Axys, ASCII, Broker's Ally, Captools, Centerpiece, Datamax, dbCAMS, E-Z Data , Foundation, Plaid Bros., Por tfolio 2000, Security APL, W ilson Varies Bear Stearns, Bloomberg, CDA, CS First, DLJ , First Call, Hoover, Market Edge, Market Guide, Micropal, Mor ningstar, Pershing, Prudential, Reuters, S&P, Second Opinion, SEI,, Thomson, Zacks A, C, D, E, F, G, H, J, K, L, M, O, P NA
BMA Financial Services Inc. o Kansas City, Missouri o 800-676-3637 o
NA/NA 1, 2,3, 4 10,000+ (NA) IRA (NA)

Cash mgmt. (NA)

Wrap accts. (NA)

Client mgd. (NA)

NA dbCAMS, DST Vision Varies Bridge, DLJ, Dow Jones, Market Edge, Mobius, Morningstar, Pershing, S&P, Value Line, Wilson NA NA
Brecek & Young Advisors Inc. o Folsom, California o 888-777-1992 o
350/$0.12 1, 3, 4, 6 9,000+ ($0-$25) IRA ($30/yea r)

Cash mgmt. ($60/year)

Wrap accts. (0.4%-2.0%)

Client mgd. (0.4%-1.4%)

$0 Advent Axys, Centerpiece, dbCAMS, MaXXBroker $0 Argus, CDA, Comtex News, DLJ, Econoday, Fid elity, First Call, Hotspot, Ibbotson , Lehman Bros., Market Watch , Morningstar, Rsrch. Holdings, Reut ers, SEI, S&P,, Stock Screener, Telescan A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q Now offers four in-house programs and 15 third-party programs
Cadaret, Grant & Co. Inc. o Syracuse, New York o 800-288-8601 o
276/$0.58 1, 2, 3, 4, 6 3,911 (Varies) IRA ($0) Cash mgmt. ($0) Client mgd. (Max. 2.2%) $0 dbCAMS, PC Trader, TIMSLINK, Wilson $0 Argus, S&P A, B, C, D, E, F, G, H, I, J, K, L, M, O, P, Q 401(k) download;expanded electronic mutual fund trading capabilities; revised marketing material; additional product lines
Cambridge Investment Research Inc. o Fairfield, Iowa o 800-777-6080 o
300/$1.50 1, 2, 3, 4, 6, 7 10,000+ ($20) IRA ($0-$35/ year)

Cash mgmt. ( $0-$75/year)

Wrap accts. (100 bps/year)

Client mgd. (Varies)

$33-$50/month Advent Axys, Captools, Centerpiece, Datamax, dbCAMS, DST Fanmail, DST Vision, MaXXBroker,

Neteschange Pro, Portfolio 2000

$20-$40/month Bridge News, CDA, DLJ, FundScan, Hotspot, Insta nt Edgar, Lehman Bros., Market Edge, Marketscope, Morningstar, Pershing, Rsrc h Hold- ings, Reuters, S&P, Street. com, Value Line D ,E F, G, J, L, M, P Turnkey asset allocation program using mutual funds separately managed accts. or combination with aggregated performance reporting
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