From the September 2008 issue of Investment Advisor • Subscribe!

September 1, 2008

You're the Tops—2008 Broker-Dealers of the Year

In a comprehensive face-to-face discussion, the leaders of the Broker/Dealers of the Year explain their firms' unique charisms and how they plan to remain at the summit of their professions

In this, the 18th year that Investment Advisor readers have chosen Broker/Dealers of the Year, it's not easy to be any kind of broker/dealer. On the one hand, it seems that the rich are getting richer--that size and scale are being achieved by the few at the expense of the many. One of the casualties along the way is the intimate pas de deux between the independent contractor rep and the independent broker/dealer that has long benefited rep, B/D, and client. Perhaps that's as it should be. After all, larger firms are able to devote the resources necessary to provide a broader range of wealth management services to clients whose advice needs can be as complex as their financial and family lives. However, there's more to providing good advice than the mere size of the organization doing so, and having a unique vision for your firm, and supporting quality reps providing that advice, is more important than the number of reps providing it. Moreover, while growing competition, an aging rep force, thin margins, the trend of reps forming their own RIAs while still demanding the latest technology and the highest payouts, the continuing albatross of compliance, a seemingly bottomless market, and an economy that may have been in recession already for several quarters might cause the leaders of independent B/Ds to despair, that isn't the case at all. "I would suspect every year we'd have almost the same list" of troubles, says Eric Schwartz, the founder, CEO and chairman of Cambridge Investment Research, Broker/Dealer of the Year in Division IV, the largest of the four divisions in which awards are given.

Nick Sondel, founder and president of Harbour Investments, which won Broker/Dealer of the Year in Division I, the smallest of the four, says "it's surprising that it's not worse." Schwartz reports that "most of our reps are not that much off this year and some are still growing. The most successful ones, the million-dollar ones with mostly recurring revenues, they're up 10% to 15% this year. People that are smaller, more transactional. . .they've backed away and they're off maybe 30%." The leader of the winner in Division II, Ralph DeVito of The Investment Center, notes that he's finding the same dynamic at work: "The majority of the reps are not that worried per se. They don't like the markets, but their clientele is pretty secure."

The shared sentiments of the four winners could be summed up by Barry Knight, president of NEXT Financial, which won Broker/Dealer honors in Division III. "Difficult markets like we're experiencing, it's really a great time for good broker/dealers and good reps." Knight points out that "fee-based revenues are down in relation to the size of the markets being down," but adds, "I have to say I've been surprised by how calm our reps, and their clients, are."

Spending an afternoon in a Chicago hotel conference room with these four men on a day when a tornado touched down in Cook County reflected the current turmoil of the independent broker/dealer universe. Buffeted by forces outside their control, with different ownership structures and with independent-minded rep forces that run the gamut from less than 200 to more than 1,200 and based in different parts of the country with different compensation models, these are leaders who put their differences, and their shared principles, to work for their firms, reps, and clients.

"We're all independently-owned firms, all focusing on similar kinds of clients," Schwartz said during the four-hour roundtable meeting on August 4 with Investment Advisor Editorial Director Jamie Green, with individual and group photo sessions that same day directed by IA's nonpareil art director, Scott Valenzano. "The independent model is best served, in my admittedly very biased view," argued Schwartz with his trademark candor, "by independently owned broker/dealers who still have the passion and can relate to reps on a one-to-one basis."

Knight positions it a bit differently: "I talk a lot about moving from being a purely entrepreneurial organization to an enterprise organization, while still maintaining the heart of an entrepreneur," while Sondel says he's "sure there's something else that we have in common: no or low attrition, because we listen to our reps." DeVito phrases it neatly: "It's knowing who it is you're dealing with," in referring to the reps in his relatively small B/D, "how they fit with your business. We have guys who have been with us since we started--for 22 years--we almost never lose the top guys."

These top guys took the best part of a stormy Midwestern day to share their insights into their own firms, why their reps gave them their highest scores in the B/D of the Year balloting (see sidebar on how the firms were chosen by readers, page 60), and how they and their firms hope to remain on top. We're taking up 10 pages of this issue to share those thoughts with you, along with the other gems we learned from the nearly 5,000 broker/dealer reps who took the time to vote this summer. This cover story is followed by a three-feature special report on the present and future of independent broker/dealers, and the alternatives. Please read on.

On the Wirehouses and Recruiting

The leaders of the four winning independent broker/dealers of the year spoke candidly--with a touch of tongue-in-cheek humor--on how they differ from their wirehouse cousins, and why they're not in the same financial and regulatory hot seats--particularly related to the credit crisis.

Schwartz: We don't do enough clever stuff to have those kinds of problems; it's a self-protective mechanism.

Knight: When you operate on the kind of margins we all do, you never get quite so aspirational.

DeVito: I was talking to a very high-end fellow at one of the wirehouses recently. I said why do you do this? Do you actually make enough money? As a product gets driven by one firm, then at the shareholders' meeting they ask, "Why aren't you making money on it?" and they all follow suit. We would never do it because we have the liability. We think far enough ahead and say, "If we sell this, some years down the road, it's going to cost us this much!"

Schwartz: If they can make a $30 million bonus this year, they're not worried about what the company's going to make 20 years down the road.

Knight: Absolutely. It's short-sighted greed. But we still haven't seen the mass migration that's been predicted from the wirehouses. We keep saying that it's bound to happen as people want to monetize their practices, and we've seen more than we've seen in the past, but I think that's because we're more of a mature firm.

Green: But you have seen people move from the wirehouses, especially recently?

Knight: I think about 17% to 18% of the reps who've joined us in the past year came from the wirehouses--that's on a GDC basis, not on a rep basis.

Schwartz: I would expect that a few years ago that percent was close to zero.

Knight: Right. Part of that is that we're larger, so if you're in a wirehouse you'd be more comfortable with a larger firm.

DeVito: We're seeing that, too, even with 300 reps. We're seeing them come without the gripe, without having to sell them as much on the process.

Schwartz: The ones that are going, you don't have to convince them that independent is okay, at least the ones who are calling us. They've already figured that out, now they're going to choose a broker/dealer. In the old days, it took them five years to get up the courage to go independent.

Of course, there are a lot of things the wire firms do to keep people there. There are 200% signing bonuses every five years if you want them. There are also certain lines of business that don't transfer over here as easily. If someone is managing money themselves in either a commission or a fee account, they're way ahead when they get over here cash-flow wise, as well as the equity in their practices, but if they're doing separate accounts . . .

DeVito: . . .it's almost not worth it.

Schwartz: The thing about us in this room is that we're not really looking at those guys anyway. But the guys in the wirehouses have been trained that separate accounts are the way to go, and it's not by accident that they're also what's most profitable for the wire firms. Where they have more of a golden handcuff on them is because the pricing is so competitive. Out here you're paying 70 to 100 basis points, even more, for separate accounts, and there they're paying 40 or 50. Even with the differential in payout, it isn't as advantageous when it's their main course of business. We've even had some people change their main course of business in order to go independent. They wanted to go independent badly enough that they stopped using separate account managers for the most part and shifted their business. But performance of separate accounts hasn't been that roaring. Many mutual funds have been very competitive with them. If the price differential on separate accounts wasn't the way it is, I think we'd be seeing many more [wirehouse brokers go independent].

On the Markets and How It's Different This Time

When it comes to dealing with a difficult market, the leaders are a bit more sanguine about long-term prospects, pointing out that reps and clients learned their lesson during the last market contraction, though there is some concern about market manipulation.

Schwartz: I think what happened from 2000 to 2002 gave [clients and reps] a level of pain way beyond what they're experiencing today. Back then, the market had gone straight up for 10 to 15 years, and obviously the tech stocks had gone totally crazy, then tech stocks went down 80%, and many reps had overweighted in that area. Today, at 20% off the absolute, absolute peak, they're not happy, but it's nowhere near what that was. Now, if we're talking here 12 months from now and the market's down another 20%, then I think you'll be hearing a very different story.

All in unison: Absolutely.

Schwartz: But if we're at the bottom now and flattening out and we end the year this way, and then we're up 5% to 10% next year, then it will be a relatively minor . . .

Green: Sorry, did you just say that we've hit the bottom? "Eric Schwartz has called the bottom of the market!" I want to make sure I've got that quote right . . .

Knight: That was our prayer, not a statement of fact.

Sondel: People have not forgotten how the markets were then, and they have to be very, very careful. Our investors are more careful, our reps are more careful, we're using projections that are much more realistic. We don't take clients who want 12% income, unless they're willing to sign a suicide letter and they have to be very accredited or something. We're being very selective and watching ourselves to make sure we're realistic. Right now the 10-year numbers are terrible, and investors are looking at reality--you could be in the markets for 10 years now and not make money, so what other strategies do you take?

Schwartz: Expectations are so important. People used to expect 20% a year back then; now they're thinking of a number more around 7% to 10%.

DeVito: Or zero!

Knight: Anything positive will be fine! (laughter all around)

Schwartz: Allocation models are better now--it's more balanced. So people aren't down the 20% that the market's down, while back then the market was down 40% and they were down 40%, or even 60%. There's one other thing: I was at my national conference and one of my reps said, "This is what I get paid for!" Business is pretty easy in down markets--but now, this is what we're getting paid for. This is when people need us most, and that's the challenge, but also the opportunity. This is where we earn our keep.

Sondel: I've been through so many cycles now, it's a time for the good reps to shine. To grow their practices; get more aggressive; calling their clients more often, asking for more referrals, because now is the time that people are thinking, "Maybe I should be talking to another broker." These down markets are really great times for reps who are more aggressive and will be the stars in the long run.

If the regulations keep getting worse and the markets keep returning under 10% for long periods of time, then the smaller brokers are going to have a tough time.

On Compliance and the Future of Regulation

The issues of regulation and compliance are never far from the minds--and pocketbooks--of independent broker/dealer leaders. There's also concern that RIAs will continue to feel the burden of greater regulation, and that's not a bad thing, the leaders say. So how do they feel about regulation?

Schwartz: I think we've gotten used to it. Regulation is at the highest level it's ever been. It ramped up substantially after problems arose that we had nothing to do with--like Enron and so forth--but the rate at which it's increasing has slowed down considerably. There was a time when it seemed there was a Notice to Members every three days or so, with some new thing they were working on. The SEC and the NASD have gone through just about every major category of business that we do--mutual funds, variable annuities, A shares, B shares, as well as all the different ways we give information out--in the last five years and have adjusted regulation or made new regulation in that regard.

I think that as a member of the FSI Board of Directors--I'll be chairman next year--there's still plenty more for us to do, it's not like they're not going to give us any new regulation in the next five years--but there were so many things coming out so fast over the last few years, that you needed two years just to come up with the systems to comply with it all. Now most B/Ds have caught up and are complying.

DeVito: I just hope it doesn't happen again, in reaction to the bad market and bad decisions of some of the players out there, I hope they don't ramp up again.

Knight: As Eric [Schwartz] pointed out [regarding the markets], the change that we saw after 2000-2002 when so many client assets were lost and then the regulators came in with great increases in staffing to go after these issues, and the huge public finance sector issues they went after even recently--they've handled most of the big issues and I don't see it increasing. It's this thing that we've had to absorb and digest.

Sondel: They often don't understand the kind of firms that we have and they come into our offices like it's their first day on the job--not always, sometimes we have good regulators who come in and realize we've been in business for 21 years and we haven't gotten in trouble and things are going pretty well. But a lot of times they'll come in and not know what's going on, and they'll do something like subtract our rep payables from our net capital and say, "Oh, well, there goes $2 million," or whatever it is.

I follow a lot of individual stocks, and I think that's where the regulation needs to go. When I watch individual stocks, it just seems like a rigged game all the time. The same thing is happening with oil--it's very predictable that we're going to have a crash in oil. The speculators get together, and it's a small kind of collusion that goes on with the stock--especially smaller stocks with the market makers--you can just see stocks being driven up beyond any reasonable value for no reason only to fall well below what the value should be for no good reason. It leaves you standing there wondering what to do. You can buy a bargain but how long is it going to be held down artificially until the other investors are driven out and the big boys hold all the stock?

Schwartz: I think on some individual stocks, certainly the smaller ones, that kind of thing goes on, but when you see how these high-level hedge funds crater and major firms crater, they certainly don't know where the top and the bottom is. The system does allow, especially in markets where there is less liquidity, for things to run away.

We've seen boom after boom here over the last years, especially oil, which is not sustainable at $150. It could go to $250 before it goes down to $80 again, but it's certainly not sustainable.

Sondel: The regulators should focus more on that kind of stuff rather than people like us who are just trying to make an honest living taking a sliver by introducing products to the market.

Knight: All of these things are so predictable. Whether it's manipulation of individual security prices or whether it's the credit or mortgage markets--maybe it's just a function of having a few gray hairs, but did any of this not seem predictable? It's just like the oil thing. Oil is obviously going to come crashing down at some point--it may go higher before it does--but was money too loose a few years ago? You think, maybe? Geez, it's shocking. And I'm not sure what the regulators do about that.

Green: Are they not only not focusing on the right thing, but are the right regulators doing the focusing? If you look at the Treasury Secretary's blueprint for regulatory reform and you look at how active the Fed is lately, it seems that the SEC is the odd man out. Is there a turf war shaping up--will FINRA be regulating RIAs?

Knight: Someone's going to have to.

Schwartz: If you look at what's going on on the regulatory side, it's based on how the world was 20 or 30 years ago. Not that they're antiquated, but the base, core structure is that you have RIAs, who 30 years ago were--

Knight: Tiny.

Schwartz: . . . boutique firms dealing with the super-rich, where today they deal with the same people that broker/dealers do. Most of our reps do both things; most of our reps do securities, which is a broker/dealer activity; and RIA activities; and insurance activities. Thirty years ago, all three of those were completely separate, and it was very rare for somebody to do more than one of them. Now we're living in an age where they're being offered by one person. I believe that 15 years from now all those things will be integrated; in my mind there should be one license for all those things. Because if you're an RIA and you're giving advice about insurance products, does anything in RIA training give you that experience, or did you get it from somewhere else? Say a client comes in with a million dollars, and they're going to invest it with you through 12 mutual funds. In one way you sell them a commissionable product, and another a fee product, and in both cases you make about the same amount of money. So why do you have two completely different sets of licenses?

I'm not saying this is going to happen next year or that anyone else agrees with me, but I wouldn't mind at all if there was one license--when you're done you can sell commission-based product or fee-based product; you can recommend insurance; you can recommend securities. We're seeing this happen right now with the index annuities, which they're thinking of making securities. To me it makes some sense--someone who's out there giving advice should have knowledge about all these things.

Knight: The historical precedent for licensing in the industry has been based around products, or lines of business. The appropriate way, I feel, is to base how we're regulated around the needs of the people you're serving. In order to serve a retail client, especially for the next 20-30 years as we move the pig through the python demographically, it's going to be about the late-years-of-accumulation phase moving into the income phase, and that's going to require at least insurance and securities products. Again, the distinction between whether you're doing what you're doing as an RIA or broker/dealer is blurry. On the RIA side, I think that's an area that's going to get increased regulatory scrutiny.

Schwartz: Certainly Paulson and prior to that the SEC have said several times that they need an SRO for RIAs and the regulators are all recommending that it be FINRA. RIAs and the FPA are extremely opposed to that, but every broker/dealer would be extremely opposed to being regulated by FINRA if they had a choice [chuckles all around]. And the FPA has some reasons why they're particularly concerned about FINRA, but if you look at it from the eyes of Congress, the SEC, and Treasury, FINRA has shown itself to be the strongest regulator, one that actually has teeth.

Insurance regulators are very liberal--you can create a product with a 20% commission and a 25-year surrender charge. They're relatively light on insurance, relatively light on RIAs, very heavy on broker/dealers. If you're concerned about increasing regulation and making it complete, and you're a regulator or a member of Congress, who are you going to point to? Your most successful regulator--FINRA.

DeVito: I can see that for the completely independent RIAs, they wouldn't want it. We would welcome it because there'd be more consistency in procedures and rules, and we wouldn't have to be fighting on two different fronts. Multiple tests, but one registration. Then we would have one set of rules to keep us all in line.

Green: Then to your point about the end client, they would have a clearer idea?

Knight: Just from a streamlining perspective, our line of business is serving the retail client, that's most of what we do. It requires at least a couple of different licenses at this point, and if you're approaching the process of helping clients manage their financial futures, you're going to need to use products from a variety of different lines that require different licenses. You're going to be regulated and supervised by at least a handful of different agencies--FINRA, the SEC. You're going to have your state agencies and insurance regulators. Certainly some consolidation [would be good], and I'm not saying it should be simple or easy thing to get.

DeVito: It would be an easier conversation with our reps.

Knight: Right, you're constantly going through the process of asking if you have the right license to do this, and alternative products are another thing that will have to be weaved into the process.

Schwartz: Part of the reason this is happening is because of the products that are coming out. You have a separately managed account now that has insurance wrapped around it. You have all kinds of things that are going over the lines. At FSI, when this has been discussed, and this is not official, most broker/dealers would favor FINRA because it would simplify their lives, though clearly it would result in more regulation of RIAs.

DeVito: Absolutely.

Schwartz: But those regulations would probably parallel the broker/dealer side so it won't be wholly different. If you talk to most people who have an RIA, they don't want to see their regulation increase.

DeVito: And you'd have a uniform code of conduct.

Schwartz: Even though RIA regulation has probably doubled or tripled in the last five or seven years, it's still way down the bottom, say 20% of what broker/dealer regulation is. You talk about levelizing broker/dealer regulation, unfortunately they're not talking about lowering our broker/dealer regulation. Granted, there are certainly some areas of the RIA business where there is less of a conflict of interest--churning, market making. So the burden on RIAs would be less, but instead of 10% to 15% to 20% of our level of regulation, maybe it would be 50%, 60%, 70% when it is all done. It will absolutely happen, it's just a question of how soon.

Sondel: It seems to me that most of the RIA regulation is focused on broker/dealers who have RIAs--which typically are the larger ones. Our experience is that the RIAs who we affiliate with, ones with less than $100 million in assets, they've probably never been audited, if they've been under 10 years in business. We're kind of the training ground for the SEC or whoever wants to start monitoring our RIA. The liability has increased substantially for affiliating with these RIAs. It used to be we just had to make sure their trades were suitable, but now our interpretation of the rules is different. The outside RIAs we affiliate with, now we have to make sure their RIA is up to snuff from the ground up. That places a big burden on us. If these people were being audited, being regulated, they wouldn't leave the job up to us. Any RIA affiliated with a broker/dealer is probably getting more supervision from the broker/dealer than the regulators.

Knight: The individual outside RIAs, however you want to qualify them--not the ones affiliated with a broker/dealer--they don't have that layer of supervision, those are the ones that really concern me a lot, from the standpoint of the investing public. Some of them are pretty small. The qualifications of the people running them are not very clear.

Sondel: There are all these different ways of creating a fee-based business. If you look at our revenue, almost 50% of our business now comes from fees one way or another.

DeVito: We're about the same--about 55%.

What Makes Each B/D Unique

The independence of these broker/dealers doesn't end with the independent contractor status of their representatives. In addition to their different sizes, each firm has a unique history, ownership model, revenue mix, and typical client, as described, each in their turn, in this part of the editorial roundtable discussion.

Nick Sondel, Harbour Investments: What's unique about our business is that we have a family atmosphere. We've taken our time over the years to be very selective to take on reps, a small number at a time. We haven't done any mergers or acquisitions, so whenever a new rep comes in it's like having a new member of the family. We're a regional firm, so we have meetings in different areas of the region. We make sure that our producers network with each other; get to know each other.

We also have a very dedicated staff that's been with us for many, many years, and my focus has always been to build a business rather than buy myself a job, so we've educated people, a lot of them from the ground up, all the way to senior management.

They work very well together, we look at things from the rep's side, and are not a dictator type of firm.

Right now 60% of our staff is licensed principals, and we're continuing to push toward more advanced technology all the time. As we grow, our emphasis is for every staff person to be an asset to the reps. The reps see that the same person handling their trades over the phone is the one who's out there doing their audits, reviewing their business plans, their advertising, helping them in any way that they ask. Many of our principals are multi-licensed. Because of our size, they know who the stock jockeys are, who the insurance people are, who writes the big variable annuity tickets, and how to help these people--they're very familiar with their style.

We're working with a big technology firm right now to roll out some breakthrough technology. It's an example of how a small firm can offer all the technologies that large firms typically offer.

Ralph DeVito, The Investment Center: I think you can ditto that for all of us. We've been lucky enough to have the technology over the past few years that makes it easier [to serve reps]; in the beginning it was tougher to bring some of the technology forward to the reps, but now we have similar product, we all have the capability of bringing to our reps all the major lines of business.

What's unique for us, and it's something of a clich?(C), but it's service. It's about being hands-on and flexible with our reps. We just brought on a new rep from a wirehouse last week, and he didn't like our welcome letter, so we said, "Okay, we'll modify it for you." And he said, "You can do it that fast?" We said, "We'll have it for you by this afternoon." Our staff is also cross trained, so if you call in with a question, even if you don't get the specific person, they'll either know who or how to get the right answer.

Green: So one of the benefits of being small is that you're flexible enough to move quickly in certain areas?

DeVito: Absolutely. We've been growing like crazy, our [production] dollars are growing but we've stayed stagnant on number of reps for a few years now on purpose--I like to know who I'm dealing with on a daily basis, and the staff likes that, too. I feel like we can provide better service when we have people who fit our niche. We turn away many more prospects than we keep. They have to fit, because if they don't, it won't work out well for either one of us.

Green: NEXT has grown pretty quickly.

Barry Knight, NEXT Financial: Forty-three percent since 1999; yes, that's fast.

Green: That's revenue or number of reps?

Knight: Just about the same in each, GDC and reps, maybe a little more in reps. This year took a little bit of the revenue wind out of our sails. Our average rep size continues to grow, so GDC is still growing faster than rep growth.

Our value proposition is not that complicated in terms of stating it, but I think it's brilliant. From the perspective of the founders, they wanted to create a broker/dealer that was owned by the representatives, but one that was owned by a lot of the representatives. Sometimes people say they're a rep-owned firm but there's one guy sitting in the corner who owns 70% of it. So when five principals with about 40 reps founded NEXT in 1999, they said they wanted to make sure this was owned for a long time by a lot of the reps. So our ownership model is one of the things that's unique about NEXT. We have some 440 owners, the vast majority of whom--some 85%--are NEXT representatives, and that ownership model ensures a couple of things. When I come to work in the morning--and this is true for all of us here--as opposed to some conglomerate competitors who are owned by a big insurance company or whatever--I'm serving one constituency: the clients of our representatives, and our representatives. That's who we work for.

We serve them to help them serve their clients and we have a passion to build their practices. That's the other fundamental part of our value proposition. We have an absolute passion to helping our reps grow their practice based on their own vision. One of our founders, Gordon D'Angelo, who's our chairman, is a really visionary guy. He's built a vision for NEXT and some other companies he's run, but he's great at helping reps find their vision if they don't have one. There isn't a NEXT way of doing business, it's finding quality reps who are committed to serving their clients and helping them achieve that.

[To learn more about the NEXT vision and marketing plan, Jamie Green spoke separately by telephone in early August with Gordon D'Angelo, the chairman and CEO of NEXT Financial Holdings:

One of our philosophies has been, from day one, that we wanted to help professionals who wanted to help themselves. We have lent literally over $2 million to our shareholders over the past two years with little or no interest with the intention of helping them build their practices and improve their education in areas that they'd prefer. The results have been outstanding--over 60% of the representatives involved in our marketing programs have increased their production over 40% on a continuous basis. We've spent that money with the intention of increasing their noticeability, their presence, within their own community--we teach them how to do that.

We do something for our reps called strategic visionary planning, which is a very personal visionary plan for them; those who have been involved with it average over 100% growth every two years. It includes what volumes they're trying to hit, what their offices look like, what percentage of niche clients they want, even how much vacation time they want. We identify their vision, then we define the initiatives that will get them there. Once they say, "This is what I want," we become a coach for life to keep them focused and away from rabbit trails.

No one can predict the economy, the markets, or politics, but vision, to me, is something that you are going to create. It's a question of focus, and adding the personalized touch by helping with their specific niche in the community.]

Eric Schwartz, Cambridge Investment Research: If you ask most people what they know about Cambridge, what sets us apart, they'll say we're the fee broker/dealer. Certainly in 1992, we stated that our objective was to be the destination for advisors to do both their fee and commission business. Back then, that was a very small market--maybe 1%, 2%, or 3% of the reps out there--we had $500,000 in revenue that year--this year we'll cross over $275 million. The number of reps has gone from 25 to 1,300. Even though many of our competitors are in the fee business now, we've been doing it a long time and are very proud of our flexible, open-architecture fee programs.

But it's no coincidence that the four people around the table today have similar things to say. We're all independently owned firms focusing on similar kinds of clients. The independent model is best served, in my admittedly very biased view, by independently owned broker/dealers who still have the passion and can relate to reps on a one-to-one basis. That gives us an advantage over the big broker/dealers with 5,000 or 10,000 reps who are owned by a conglomerate--they have advantages, a lot of capital, and some are pretty well run, but we all very much know who are clients are--our advisors, and their clients.

The reps that represent 80% of our business all are equity participants in our firm--we give equity grants to all offices over $500,000, which represents 80% of our production. We're a big believer in ownership; that helps foster the relationship and the community feeling that the other firms have talked about.

I'm here to say that even with 1,300 reps, it's not necessarily something you have to lose as you get bigger, if you stay focused on that and it remains important to you. Certainly, size matters these days--I see things every day that we do that we couldn't do when we were smaller, and I see things we can't yet do until we're bigger--we all see that--there's a lot of technology we can build, and there are limitations based on size.

Our target market is similar to many broker/dealers. Our target is financial planning and wealth management. Thirty percent of our reps have CFPs, another 10% are CPAs, so if you add it all up, about 50% of our advisors have some kind of professional designation beyond the licenses. So it's a very professionally focused group.

We have programs where reps that have their own RIAs, we'll do about 85% of the work in running them, so we use the economies of scale so each one of them doesn't have to learn the regulatory burden of running their own RIA. Any successful company must relentlessly pursue excellence.


Editorial Director Jamie Green can be reached at jgreen@investmentadvisor.com.

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