From the June 2006 issue of Research Magazine • Subscribe!

NEXT Financial's Auld Has Big Plans

NEXT Financial Group has doubled its size every two years since 1999 and expects to continue its aggressive growth pattern in the near future. Its 2005 revenues were $54 million, up from about $37 million a year earlier -- and they could reach $75 million this year, says President Jeff Auld.

With nearly 700 advisors and staff, the independent Houston-based broker-dealer isn't poised to catch up with the likes of LPL anytime soon in terms of size. But, Auld says, it is able to go head-to-head with such rivals when it comes to the quality of the advisors it recruits -- thanks to its advisor/employee ownership plan and other features.

"We've grown rapidly," says Auld, "from obscurity to being one of the better-known independent broker-dealers. We can compete for large producers."

John Lau and Associates of San Mateo, Calif., joined NEXT from LPL, for instance, in mid-2005.

"We used to double the number of reps and double revenue," explains Auld. "Now, our focus is more on higher-producing reps and less on headcount. You don't have to see a big change in the number of reps if you're doubling revenue. We're recruiting those with more and more business," namely those with $100,000 and higher in yearly production.

NEXT has six full-time recruiters and could add one or two more in 2006.

The firm acquired the reps and book of business of J. Scott Group of Golden, Colo., in late 2005 and is in talks with several more broker-dealers, according to Auld. American Financial of Houston, led by David Cade, came over from Raymond James Financial Services, as did Steve Iversen & Associates of Albuquerque.

"It's unusual to be a broker-dealer that is owned and controlled by its representatives and employees," says Auld, a native of Oskaloosa, Iowa. "Other independent broker-dealers do have some ownership programs, but often one founder or a few partners own the majority of shares."

At present, about a third of the firm's brokers own shares of NEXT Financial, though all are eligible to participate in the program. "And under 10 percent of ownership is in the hands of our Chairman Gordon D'Angelo," he explains.

Brokers and staff can buy up to 10,000 shares. The firm has 1 million authorized shares and some 700,000 are outstanding.

At NEXT, brokers can sign up to buy shares at the current price, and they can elect to have the cost of such shares deducted from future commissions. They have up to two years to buy the shares.

"It's a significant" recruiting tool, says Chip Roame of Tiburon Strategic Advisors of Tiburon, Calif. "It's savvy as a niche marketing and potential selling point."

While not all of the nation's 100,000-plus independent advisors may be attracted to NEXT because of this program, some will, says Roame. "Not all reps want it. But do 200 to 300 successful reps want it? Absolutely."

The NEXT ownership program seems to appeal most to those brokers who want to truly operate as entrepreneurs and to those broker-dealers with 20 to 100 reps that want help with compliance and technology, he says. "It's not about winning over all the brokers, but grabbing [some]," concludes Roame.

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