From the July 2008 issue of Boomer Market Advisor • Subscribe!

Does Your Broker/Dealer Stand Behind You?

It's all too easy to partner with a broker/dealer in an up-market. Clients are happy, returns are generated and everyone's making money. But what happens when markets get a bit more volatile? It's at this point when the true value of the broker/dealer-advisor relationship is revealed. How well does your broker/dealer leverage their expertise for your benefit? How, specifically, do they assist you in keeping your clients calm and retaining business? What touch points do they offer to ensure you and your clients are educated and reassured about current market conditions? We asked executives and their top advisors at three well-known broker/dealers (Securian Financial, Woodbury Financial Services and Questar Capital Corp.) these very questions. Their answers will surprise you.

Securian Financial Services
CEO George Connolly and advisor Mike Gabriellian

"What the partnership has done is allow me to build a practice without ever having to apologize for my broker/dealer," Mike Gabriellian says. "I've never been embarrassed by what they've done."

At first glance, that is a pretty obvious statement. Who doesn't want their broker/dealer to stay out of trouble and in the good graces of investors and regulators? But what was once a standard prerequisite for doing business is no longer standard, as more financial services firms find themselves in compliance and legal hotspots. Job one of any good broker/dealer is to ensure the firm and its reps are on solid legal footing, especially in the current market environment. Gabriellian, who's been with the firm for 18 years (and through more than one down-market), has complete confidence in Securian Financial - and CEO George Connolly - in this respect.

A big part of it, says Connolly, is staying true to basics and viewing the hot new thing with a skeptical eye.

"Our basic philosophy has been, 'Let's have enough choice in anything that matters to our clients,'" Connolly says. "Be it investment advisory, variable annuities, stocks, bonds, unit investment trusts; we have not tried to artificially limit the scope of what we do."

And alternative investments?

"We have some alternative investments," he adds. "But having said that, we're also disciplined in saying, 'we're not going to do something unless we can achieve relevance in the totality of our service.' We've avoided certain hedge funds that we could only do, say, 10 transactions totaling $15 million. We'd have no standing with the hedge fund if there's a service issue. So we've run the risk of irking some of our significant reps by saying, 'we're not yet ready to offer certain products.' But until we can do it well, we don't want to do it. And that's been our baseline."

He adds that if he were to guess where firms are most likely to find themselves on the receiving end of some "recreational torture," it will be decisions made in 2005 to offer alternative investments that were sold in 2006, 2007 and the beginning of 2008.

"I think that that could be an exposure point for the industry," says Connolly who, points to a number of measures the firm is taking to calm clients in the current volatile market. The first is to always put the information they provide in historical perspective.

"One of the things we do is to make sure we have fresh pieces out there updating people on, 'Hey, this has happened before,'" he says. "Let's not overreact to oil prices. In the late 1970s, the oil and housing sectors were so significant that it basically rendered us an economic eunuch, if you will. By contrast today, while oil, energy, and the housing sectors are still material, they're not as material on a relative basis. So, the economy is more flexible and better able to withstand a shock to one particular sector. Our guys are not hearing this kind of stuff for the first time."
He also points to the firm's client-centric approach as a plus in the down-market. It's not about worrying which program or product is sold, he says.

"We'll get our fair share of business from the manufacturing side of the house. For us, like a lot of firms, we recognize that we don't exist but for the advisor. Yet I think we're a little different. Some of the best firms in the industry are so advisor-focused that they lose sight of the client. But Mike's focus is on the client and our focus is on the client, and our dialogue is always around how to best serve the client. We do it three ways: planning, programs, and as I mentioned before and come back to (especially in today's environment), perspective."

Woodbury Financial Services
President Walter White and advisor Steinar Berg

"As a rep, I see that Woodbury wants the personal relationship to succeed regardless of how fast they grow," says Woodbury rep Steinar Berg.

And grow they have. Since its inception in 2001, through the acquisition of Fortis Financial Group by parent company Hartford Life (Berg was on the advisory council during the transition), Woodbury has become one of the premier broker/dealers in the industry. And the firm's consistent, long-term focus is one reason why.

"They're not getting excited [about this turbulent market]," Berg says. "I don't think they should. They have to show confidence and consistency, and I think they're doing it in this market. They did it back in 2002. They did it in 2003, and in 2004. So I think they stay on top of the game. They give us the opportunities to learn and react better with our clients."

"I think our message all along in any market has been about long-range principles," adds President Walter White, "and how you should not get caught up with what you read in the press. We rely heavily on the skills of our representatives to take that message out. When I look at reps like Steiner, I think that's the basis of the relationships they've forged with their clients. They are by their nature very long-term and not reactive to short-term, volatile market cycles."

White says clients are particularly sensitive now to getting high-quality service; that their advisor stays in touch and they get answers to specific questions based on what they see in the press. Tough markets, he says, make it that much more important to respond quickly and completely. But tough markets are also good for the advisor business.
"We believe strongly in the independent, objective, local rep model," White says. "That's always been Woodbury's focus. I think it's that type of rep that's particularly well suited to deal with turbulent markets."
Why?

Because, according to White, they're objective. So they can move to other products, if necessary, without being constrained by proprietary concerns. And they're local, so there's a lot of face-to-face contact with the client.

"I think our whole distribution strategy plays well to this. I think the counsel we give our reps along the way about what you might hang your hat on and what to stay away from as you build your business is extremely valuable. I always counsel reps not to focus so much on their investment management prowess because you don't control the market. It should be much more about setting long-range expectations. I think Steiner is a great example of somebody who's done that with his clients over the years, and hence, he doesn't face a lot of angst."

Personal relationships are critical, but they aren't the end-all, be-all for the firm. No rep will stay with a firm because they happen to like the players involved. Service is just as important and improvements, White says, are a constant focus.

"We're very aware that relationships can't be everything and you've got to deliver the basics, especially high quality service in the back office," White says. "So we look at a lot of measures, including phone-related measures, and how fast we're responding to inquiries. We look at how fast we're turning around transactions. Are we getting them out the same day? Are we getting it right the first time, or are we doing any re-work? We recognize, particularly in a difficult market, any issues that you have on the service side become magnified in the eyes of our reps and their clients."

Questar Capital Corporation
President Mike Jorgensen and advisor Doreen Molinari-Sadelack

"They provide a lot of guidance for reps, introducing us to new ideas in alternative, non-correlated investments," says top Questar advisor Doreen Molinari-Sadelack.

Non-correlation is one way Questar assists its reps in navigating the turbulent market; non-traded REITs, and oil and gas investments, in particular, help Molinari-Sadelack reach out to the high-net-worth set.

"We really have a strong alternative investment approach," says Questar president Mike Jorgensen. "And Doreen specializes in this. It's a REIT and oil and gas program, which we're very huge on. They do very well in down-markets because they don't correlate with the market. Often times, people will use the Dow or the S&P 500 as the benchmark for how things are going. That's only one asset class option for clients. So, we've done a lot of training around other alternatives."

Jorgensen also points to the company's Mosaic practice management program as an example of helping the reps in-turn help their client, and thus, stay profitable in volatile markets. Close to 150 advisors have gone through the program, he says. The first year the average increase in GDC was 74 percent; the second year was an additional 68 percent.

"So a $100,000 producer coming in leaves two years later doing about $300,000 in GDC, and that's our average," he says. "It incorporates workshops, peer interaction and one-on-one coaching for a year. It's a lot like having a personal trainer. We all know that we need to go to the gym and eat better, but once you actually hire a trainer, sometimes that doesn't happen. We sit down with the advisors and ask them what their goals and objectives are for their practice. We build out a business plan, and then we have weekly one-on-one coaching sessions here to make sure they're holding on to the things that they committed to. Again, I think it's a lot like having a personal trainer. We try to focus on things that are a little bit different than going out to and just giving an e-mail, although we certainly do have that."

Lastly, Jorgensen points to the company's symposium series, which are two-day lectures they sponsor in Minneapolis. They have 60 of their registered reps in for a fee-based symposium, and their outside money managers and vendors teach the advisors about moving to a fee-based platform.

"This has been of particularly high interest lately with the markets being choppier," Jorgensen says. "What you tend to see is clients will do less transactions in a choppy market because they get scared, but they still need advice, which is why many of them want to have a fee-based relationship. They feel comfortable calling even if they're not going to do anything. And the advisor is willing to invest in that because they're getting paid to help them through these times."

Woodbury Financial Services
President Walter White and advisor Steinar Berg

"As a rep, I see that Woodbury wants the personal relationship to succeed regardless of how fast they grow," says Woodbury rep Steinar Berg.

And grow they have. Since its inception in 2001, through the acquisition of Fortis Financial Group by parent company Hartford Life (Berg was on the advisory council during the transition), Woodbury has become one of the premier broker/dealers in the industry. And the firm's consistent, long-term focus is one reason why.
"They're not getting excited [about this turbulent market]," Berg says. "I don't think they should. They have to show confidence and consistency, and I think they're doing it in this market. They did it back in 2002. They did it in 2003, and in 2004. So I think they stay on top of the game. They give us the opportunities to learn and react better with our clients."

"I think our message all along in any market has been about long-range principles," adds President Walter White, "and how you should not get caught up with what you read in the press. We rely heavily on the skills of our representatives to take that message out. When I look at reps like Steiner, I think that's the basis of the relationships they've forged with their clients. They are by their nature very long-term and not reactive to short-term, volatile market cycles."

White says clients are particularly sensitive now to getting high-quality service; that their advisor stays in touch and they get answers to specific questions based on what they see in the press. Tough markets, he says, make it that much more important to respond quickly and completely. But tough markets are also good for the advisor business.
"We believe strongly in the independent, objective, local rep model," White says. "That's always been Woodbury's focus. I think it's that type of rep that's particularly well suited to deal with turbulent markets."

Why?

Because, according to White, they're objective. So they can move to other products, if necessary, without being constrained by proprietary concerns. And they're local, so there's a lot of face-to-face contact with the client.
"I think our whole distribution strategy plays well to this. I think the counsel we give our reps along the way about what you might hang your hat on and what to stay away from as you build your business is extremely valuable. I always counsel reps not to focus so much on their investment management prowess because you don't control the market. It should be much more about setting long-range expectations. I think Steiner is a great example of somebody who's done that with his clients over the years, and hence, he doesn't face a lot of angst."

Personal relationships are critical, but they aren't the end-all, be-all for the firm. No rep will stay with a firm because they happen to like the players involved. Service is just as important and improvements, White says, are a constant focus.

"We're very aware that relationships can't be everything and you've got to deliver the basics, especially high quality service in the back office," White says. "So we look at a lot of measures, including phone-related measures, and how fast we're responding to inquiries. We look at how fast we're turning around transactions. Are we getting them out the same day? Are we getting it right the first time, or are we doing any re-work? We recognize, particularly in a difficult market, any issues that you have on the service side become magnified in the eyes of our reps and their clients."

Reprints Discuss this story
This is where the comments go.