From the September 2011 issue of Investment Advisor • Subscribe!

Take Charge: The 2011 Broker-Dealers of the Year

Separating opportunity from angst marks this year’s winners of the Investment Advisor Broker-Dealers of the Year

This is an extended version of the article that appeared in the September 2011 issue of Investment Advisor announcing the independent broker-dealers who were named by their own reps as the 21st annual Broker-Dealers of the Year.

The day after our roundtable discussion with the 2011 Broker-Dealers of the Year, Standard & Poor’s downgraded U.S. government debt in a historic move that left an already weakened economy reeling. Not that the heads of these venerable firms were somehow unprepared, but nonetheless it should be noted for posterity’s sake; a “sign of the times.”

It was one more thing to add to the long list of what these broker-dealers (and by extension advisors, the financial services industry and the country as a whole) are dealing with. The struggling (scratch; flailing) economy, Dodd-Frank, fee compression, increased competition, baby boomers at age 65, succession planning issues—and on it goes.

So why were they so relaxed?

The interview was punctuated with laughter, good humor and mild ribbing. Being named one of this year’s winners was no doubt a factor, but the real reason was revealed soon after the start of the discussion. For them, it’s all opportunity. Not that anyone took glee in, or made light of, the nation’s travails, but the excitement over their ability to help—to “do their part”—was palpable.

The men whose firms won Broker-Dealer of the Year honors—as chosen by their own representatives—gathered in Chicago with Editor John Sullivan and Group Editor in Chief Jamie Green to answer prepared questions, but their easy manner had them largely talking amongst themselves.

This year’s winners (or their firms) aren’t new to the process, with three of the four capturing top honors over multiple years. They are Ralph DeVito of The Investment Center, Timothy Murphy of Investors Capital Corporation and Patrick McEvoy of Woodbury Financial Services. The only newbie to the group, Bradley Shepherd of Founders Financial Securities, confidently predicted we’d soon see him again.

Each had a lot to say (including Ralph DeVito, who was detained due to travel issues) and, as with every year, editing the transcript alone took a bit of doing. An excerpt is provided here, but the 21st anniversary BDOTY celebration continues online at AdvisorOne.com, where readers can find the full, uncut interview transcript, individual interviews with this year’s winners and behind-the-scenes video at the magazine’s photo shoot. We’d also be remiss if we didn’t point to comments made in past years by some of this year’s winners, provided in this month’s BD Briefing. They proved to be entertaining, as well as surprisingly prescient about the issues with which the industry is currently dealing.

[Click here to learn how the Broker-Dealers of the Year were picked.]

REGULATION: WHAT’S KEEPING THEM AWAKE AT NIGHT?

Timothy Murphy, Investors Capital Corporation: The biggest thing that concerns me is the Department of Labor’s ruling on the fiduciary issue. I know there’s been a slight reprieve, but they seem steadfast in changing the role or definition of fiduciary as it applies to IRA accounts. A significant amount of accounts in our firm are IRAs and could be greatly affected. The end result is that the people who need the advice the most are less likely to get individualized, customized advice.

Patrick McEvoy, Woodbury Financial Services: I agree. My feeling is that for years we worried about NASD and then the SEC and FINRA. We have so many competing regulators. Everybody is trying to compete for who can regulate us the best. Now we’re into the legislative world with Dodd-Frank and all of the unintended consequences from that. If I hear another politician tell us that we have to pass the bill to understand what’s in it I’m going to go crazy. We used to have a rules-based regulatory environment; now we’re regulation by enforcement. And I think that’s really hard for firms to stay ahead of. To Tim’s point, those whom we’re trying to protect are the people we’re going end up injuring the most.

Bradley Shepherd, Founders Financial Securities: You’ve also got many different competing methods of engaging in the financial services business. Trying to capture banks, wirehouses, independents and IRAs all under common types of platforms; the nature of distribution forms is different. And so you have one set of all-encompassing rules in an environment where you’ve got lots of different ways people are going about getting advice and engaging in a relationship. It makes it very challenging. We’re a small firm and we don’t feel like we are necessarily as well represented as Woodbury might be. At the end of the day, I think it boils down to the fact that the intentions might be right, but the execution is very poor.

John Sullivan, Investment Advisor: Is there a way to be proactive?

Murphy: Absolutely. I think through FSI, through SIFMA, through political avenues. Firms have been active and engaged at various levels, but what we really need is advisor participation. The independent channel represents the largest single distribution channel by number of advisors. That’s a significant amount of constituents to take to Washington. So if we get our advisors engaged in the process, we have a better chance of influencing the outcome.

Shepherd: I personally would love to see greater advisor engagement with FSI. FSI in my opinion is the voice of the collective independent channel. And it’s very easy for an advisor to get engaged in the process by joining FSI. They’d have regular, direct communication about what’s important and what’s happening. Somewhat related, FINRA is a self-regulatory organization, which means they are, in theory, our partner. Yet I don’t know that we, as broker-dealers and people in this industry, feel that they behave as a partner all the time.

McEvoy: Great point, Brad. We kind of self-regulate ourselves too, as broker-dealers. We constantly see things, we’re testing things, we’re doing oversight. We identify problems, then we take action to discipline a rep, or even terminate a rep. If that happens, it leads to one of two things: The rep sometimes gets involved with another firm because FINRA doesn’t take action as a result of what we’ve uncovered. They then show up at another firm and harm another client. What’s worse is when we take action and then a rep comes back to us and says, “You wrongfully terminated me.” And FINRA allows arbitration to happen.

Jamie Green, Investment Advisor: What about harmonization of broker-dealer and advisor rules? Are you optimistic that it will make regulation a little more rational for everybody involved, including the client?

Murphy: What that would do is grant oversight to the RIAs of the world who aren’t regulated at this point, in practicality. You know you’ve got advisors who have been out there for 10 years who have never had an audit of any kind. Now they are moving [regulation of] advisors with under $100 million in assets to the states. Some states don’t have the resources or even an audit program in place. What I would love to see is coordination. Without it, we’re in a constant tug of war with different regulators.

Shepherd: But we, as an industry, have to look in the mirror. We’ve allowed some bad cats into the business. When your goal is to get someone a license and hand them a phone book and have them start making phone calls and try to make a living doing that, its risks bad things happening.

McEvoy: For reps entering this business, the barrier [to entry] should be high. We’re now looking at not just their regulatory background but the personal credit history. Brad is absolutely on the money. We have to get tougher and tougher, and I think most good firms are doing that.

TECHNOLOGY: USE OF SOCIAL MEDIA

McEvoy: The less that we pay attention to it, the more trouble we’re going to get in. We’ve got to put [advisors] in a position to use social media tools. I don’t think it’s going to be as hard as we think because we’re doing a lot of this and have been doing a lot of this with email and websites.

Green: You mean as far as archiving the materials?

McEvoy: Archiving, supervision and oversight. There are tools we’re rolling out shortly that will allow reps to take advantage of social media, but it will be in an environment in which we can help them to keep from harming themselves.

Shepherd: I think that’s the key point. It’s keeping advisors from harming themselves. You know there’s nothing that I can personally think of that’s productive about using [social media] as a great way to market yourself. Our guys and gals don’t use the social media tools probably the way others intend. We spend a lot of time helping our members understand that once you type it, once you post it, you can’t take it back. There’s a significant generational gap between the uses of these social media tools. As more young people come into the business, we have to have an effective way of teaching them to pause, stop and think before they push that button.

Murphy: For the younger generation, not just of advisors but of investors, that’s their preferred way to communicate. So we, as an industry, have to embrace this. We’ve demonstrated the ability to conduct surveillance of websites and email, and this will just be incorporated into our electronic surveillance programs. I think we need to embrace it, teach your advisors how to use it, even teach the clients how to use it. We deliver nearly 50% of our conferences and statements electronically to our investors; that’s something we didn’t see two, three years ago.

Shepherd: I think the advisors with independent broker-dealers have a different, more personal relationship with their clients than traditional bank and wire houses, where they have a more transactional type model. Because it’s my belief that the independent channel has a more personal relationship with its clients, the use of Facebook, LinkedIn and Twitter results in the lines getting blurred more easily. If I’ve got a client I’m managing with a couple of million dollars and they’re also a good friend, I may travel or play golf and put up some pictures, but that might not be the professional image I want to have them know me by. I think independents have a different level of accountability with social media probably than do others.

ADMINISTRATION: OUTSOURCING

Green: How much do you rely on your clearing firms for technology?

McEvoy: Five years ago--it seems like light years--but five years ago we might have looked at outsourcing things like reporting and billing. Now we look at our clearing partner to do a lot more than we’ve ever asked them before. They need to provide us with knowledge of what other firms are doing. Pershing is our partner and they’re very good at providing good solutions and coming to us to say, “Oh, by the way, you know we have other firms that are using this kind of a style.” But on the outsourcing process, we can’t outsource hardly anything anymore that has anything to do with client information, that has anything to do with billing and of course anything to do with client information. We are so careful about protecting the information that we’ve got to own, just because we have to own it not because we like to and not because somebody couldn’t do it more efficiently.

Murphy: We also clear through Pershing, but it’s not just clearing a trade and paying you the commission. The folks at Pershing have come in and done an analysis of our operations, our use of technology, the integration of it and have provided us with tremendous feedback. With that said, we rely heavily on our clearing firm for solutions, but we also now have more developers than we’ve ever had. It’s not a question of build or buy; now you buy it, but you’ve got to integrate it in too.

Shepherd: We’re smaller and only five years old, so we’ve made part of our business model outsourcing. We became a broker-dealer not because I want to hire the person to type the commission data into a commission spreadsheet or have the person actually sitting in my office to open new accounts. There’s going to be a move for smaller broker-dealers to find better and stronger outsource partners as time progresses. Our margins are different than these guys’ obviously and our 3% margin on something is dollar-amount-wise different than his 3% margin on something. For us, having the outsourcing has been a very effective way to be profitable from day one and be effective day one.

Green: Could you give one example of an outsourcing deal that you’ve made that you think has done well for you in terms of an operation?

Shepherd: Legal is an example. We don’t staff an in-house attorney. We have an outsourced legal relationship. We could go staff the attorney, pay the salary, pay all the things that go with that or we can have an outsource and use as we need. Yes, we pay more as we need, but again we don’t have a great need for it, so it balances out.

McEvoy: There used to be these organizations that would perform due diligence on third-party products. Boy, you can’t let that go anymore because when it comes time for a lawsuit they are nowhere to be found.

Shepherd: In the independent space, there’s more diversity of firms than there are in the bank channel or in a brokerage channel, so within the independent space I think you’ve got multiple ways of doing an effective business model both in size and sophistication, and in in-source versus outsource. Some of that to me is beauty. I think we as—I’ll use the term “artist,” I don’t know a better one—but as artists get to craft something a little bit different from the rest. And we get more ability to influence and make a difference than I think the rest of the distribution channels in our industry get to.

McEvoy: Brad, you’re absolutely right. Hence the word “independents.”

Shepherd: Yeah, right. Exactly.

McEvoy: And you know you have all sorts of choices. You take it back to the formation of the United States; if you didn’t like certain laws in Massachusetts, you moved to Virginia. We’re sitting here now and we do have a great deal of artistry for our firms. I want to make sure that I’m delivering the tools that I think my field force is looking for, but there is no bad and there is no perfect environment. Some firms are much better at technology than we will be, but maybe that comes with less flexibility. It all comes to what’s best for you.

Murphy: Well, just to comment on both of your comments about artists, beauty is in the eye of the beholder. Impressionism versus renaissance versus neo-modernistic, and every firm can be very different—different sizes, different cultures, geography, coupled with technology—but somebody’s going to be attracted to that business model.

McEvoy: Tim, it’s not a zero sum game. If I’m in a competition with an office and they get along with Brad better, that doesn’t mean I’m going to be harmed, that just means that’s not a relationship that fits.

Murphy: That’s one thing about this business that is unique. The amount of collaboration that goes on among us as competitors is incredible.

RECRUITING: THE PERFECT PROSPECT (OR NOT)

McEvoy: I’m not sure that I would say what my perfect prospect is. It comes back to who you’re comfortable with. But, from a broad scale of recruiting, one challenge that will continue in the independent space is the firms that are offering unbelievable up-front money. I keep telling my team, “I want to be right versus write.” I want to find the right relationship versus writing a check.

[Click here to learn what reps want.]

Murphy: Recruiting this year has picked up significantly, but it’s about quality over quantity. All of us are focusing more in that area. Our ideal recruit is somebody you would have over to your house for dinner on multiple occasions. Just as clients have a relationship with the advisor, we also have a relationship with the advisor. We clearly are looking for folks who are productive. We’ll take everybody’s personal situation into consideration, but recruiting is very expensive. Just the transition from one firm to another is expensive and there are firms out there writing significant checks. But we have no plans of being the biggest firm, so I’m not in a recruiting race. We need to grow and we need to continue to recruit. We’ll do so responsibly.

Shepherd: Recruiting for us is a fairly intense process. We really are focused on finding a person who can fit into the community of Founders. And that’s not just anybody. Production isn’t something we necessarily focus on. We think our industry en mass has done a poor job of teaching people to become CEOs of their businesses. We think they’ve done a great job of teaching people to become income producers, but they become trapped by the lifestyle of the income they produce. Founders spends a lot of time focusing on finding people who are hitting ceilings of complexity in their business model. Productively, that’s probably $250,000 dollars of GDC. They need to begin to find somebody they can partner with to build a business now. If we add 10 or 15 new members a year we’re thrilled. We certainly have aspirations to be bigger. We need to be bigger. But we’re going do it one relationship at a time.

McEvoy: I keep telling my team, “Let’s not confuse activity with progress.” If we want to recruit 1,000 reps in any one year, any firm could do that if they are looking for body count. I want to get the right relationships, but I’m focusing on growing our current base, too. One thing that you always chance when you are out in front of the rest of the pack is that your current advisors ask themselves, “Well, are you spending more time trying to find more people or trying to help me grow?” So my use of capital has to be very carefully considered.

Green: So retention is as important as recruiting?

[Click here to learn where reps would go if they were looking for a new broker-dealer.]

McEvoy: Retention is critical. My growth strategy is three-pronged and our registered reps should be thinking about it the same way. It’s retaining the business that makes them successful. It’s organically growing it through same-store sales. Then you want to find new sources of business that mirror your strengths.

Murphy: Recently, we performed a transaction where our advisors and their clients bought a majority stake in our firm. Hopefully, that’s attractive for them to stay with the firm to protect what we’ve got.

Shepherd: The remnant of 2009 is that your advisors want to know that you’ve got their back. We’ve created an environment where they know we’ve got their back. The focus is on them, not on the profit/loss statement. It’s not on a massive growth acquisition.

Green: Is it harder to differentiate yourself when there are so many options for the advisors to affiliate?

Murphy: I think the term “independent” crosses multiple platforms. The firms sitting in the room today used to be considered the independent firms. Now you have Schwab and TD “breakaways,” so the term independent I think is confusing.

McEvoy: Independent also used to be defined by whether or not you were owned by a product provider and whether or not there was a payout differentiation based on that ownership structure. I don’t know many firms that have those issues anymore. We’re owned by The Hartford. We don’t pay our registered reps any more on a Hartford product than we do anything else. You don’t want to be anywhere close to that, especially from a regulatory perspective.

Shepherd: I think there are a lot of very capable advisors in this business who don’t need as much of a personal relationship with their broker-dealer; they don’t need as much practice management or strategic enterprise work. Our mission is what differentiates us. You’ve got to have a clear vision of what you want to be, and who you are, in order to differentiate yourself. Otherwise, it’s all about payout.

SUCCESSION PLANNING: THE NEXT GENERATION OF ADVISORS

McEvoy: The majority of our advisors are in their late forties, early fifties; maybe a little older. There are two good things about that. No. 1 is that they’re experienced and they’re professional. And of course we are all living longer, so that doesn’t mean that we have to retire at 65. But we’ve got a gap of young professionals getting into this business, and that’s a challenge. It’s hard to get an entrepreneurial advisor to understand that succession planning is an investment in their practice. That’s another concern from a recruiting standpoint: how we’re going to grow that next generation of registered reps and advisors. Yet we’ve got universities that are educating CFPs and they’re graduating with degrees. I look at my own son; he’s now an employee at TD Ameritrade, and what a great education he’s had growing up in the business, if you will, with me.

Murphy: Where does the next generation come from? Traditional avenues that people [took to get] into the business really aren’t there anymore. It’s hard for people to make the transition into the independent world from a TD Ameritrade. They can do it, but it’s hard [because] they’re coming out of a career agency system--that’s where a lot of people came from, wirehouses--but they’re not bringing in as many trainees.

McEvoy: It’s not just a succession plan; it’s really a continuity plan too.

Shepherd: I think it gets back to your point earlier; if you’re in this business to be an income producer then you don’t have a strategy and there’s no succession. Your client ultimately will go by the wayside. If you’re running your independent practice as a CEO and you’re doing the things you should be doing, succession is one of those things.

McEvoy: You can’t force them to do anything, but you can suggest a path. It’s a scary comment, but the easiest thing to do when a rep has no plan is to find somebody to take that book. That’s easy. We can do that in a heartbeat and you get a sharing of commission and off it goes. The hard part is planning it. That’s why you have to encourage succession planning. It’s hard to get advisors to act because it doesn’t yield a result today. I don’t get any result from it other than peace of mind, which should be very important.

Murphy: I think that’s correct. It’s peace of mind for the spouse and the family. It’s one thing if you see something coming, but it’s the dramatic incident that cuts everything off and takes the producer out of the picture. It could be for any reason; it doesn’t have to be death. It can be disability or any other reason.  

McEvoy: Absolutely, you have to promote that and get that done so that the assets can stay, we can control it, we can provide more assistance in the transition, provide the information. It starts with something as simple as a letter in the file that says, “This is who I’d want to handle my business if something happens to me.” And then it formalizes itself over time.

Ralph DeVito, The Investment Center: We made that part of our initial process. We asked them to have that form filled out on the front end if they have it. We encourage them to further the process with a formal buy-sell and try to match them up with a like-minded person so that it makes sense going forward. But it is a battle to get them to do it. No one wants to think about dying or getting sick.

Shepherd: One of the things Founder’s has done with our succession program is that we don’t make it available to a member unless they’ve been a member for at least three years. So we’re not interested in being the destination or last stop, so to speak, for a person who’s looking to sell their practice.

PRODUCT AND STRATEGY

Sullivan: One of last year’s BDOTY winners mentioned how supposedly non-correlated products sure were correlated in the market downturn. What processes do you have in place for evaluating new products?

McEvoy: I start very simplistically. I want you to explain it to me. If I can understand it and repeat it to you, then it probably makes some sense to me. While some non-correlated asset classes have done well, I’m still worried about when they don’t do well. 

DeVito: We do very little on anything that would be called “alternative.” We never push it along, it’s always a pull from the reps. At that point we put in the due diligence committee. Similar to Pat, if it doesn’t make sense to me, it doesn’t make sense to the client. Like you said, if I can’t repeat it, if I can’t understand it, there’s absolutely no way I’m putting it in my box. We’re reading about all the firms recently that have gone bust; $100 million here, $200 million there. At $200 million, that firm cannot possibly in my lifetime, or our combined lifetimes, make up even 10% of the damage they’ve done to themselves.

McEvoy: Ralph, you’re absolutely right, and I think that the unintended consequence of bad decisions is to look at the number of reps who are with firms that now have marks on their records and can’t go anywhere. These are good people who just got off a little bit of the beaten path in hopes of delivering something more valuable to their client. It didn’t work out and now they’re absolute victims of this, and so are their client bases.

DeVito: We do the same thing. We say that if you sold that product, you’re out. We can’t afford to take the risk on these products or the advisors who sold them.

Green: Does it make it harder when you have hedge fund strategies, but in a ‘40 Act wrapper, or an ETF that’s long-short? Does that make it harder or easier to say, “That’s alternative; that’s no good?”

DeVito: When a rep says, “I’ve got an ETF and I want to do the triple-short,” we investigate. We then explain it to them, and once they get a good understanding of it they also say “No, that doesn’t make any sense.”

Green: So you’re sort of the educator in addition to doing the due diligence?

DeVito: Sure, you have to be. Say an ETF or a structured product invests in China. If China does X and as a result Greece does Y, what happens to that structure? Can you figure that out? I can’t figure that out. I don’t know if that makes sense. I don’t understand all that.

Shepherd: I think your question is wrong. The question you’re asking isn’t about alternatives. If Markowitz was sitting here today, I think he’d admit that modern portfolio theory is modernized by alternative structures. I think he’d admit that, OK? That being said, this conversation about alternatives is misguided. The conversation should be about risk management, not alternative structures. The only reason people are considering an alternative structure is because they’re afraid to lose 45% or 57% or whatever percentage again. You don’t have to use alternative structures to create risk management strategies within the construct of the portfolio. I think our job as broker-dealers and trusted advisors is to create certainty where uncertainty exists. If we’re focused on the planning aspect, I think the relationship with the client changes and the education of the client changes. It becomes a more effective relationship. And now risk management becomes a reasonable and easy conversation to have. Clients then understand and are willing to sacrifice something on the upside to be protected from potential damage.

DeVito: This is an age-old problem. We can sit here and talk about it all day long. Maybe today we can have that conversation with the client, but in four years if the markets go gangbusters again everyone will forget. It’s the same cycle that happens over and over.

Shepherd: I think you’re right, but I don’t know if I believe it entirely.

Murphy: I haven’t given up either. I’m an idealist. But let’s go back 15 years when we were in the beginning of the Internet bubble. You had clients complaining that weren’t making 60% annual returns.

DeVito: No one wanted a guaranteed annuity then.

Murphy: No, and I believe clients need to take some accountability in this partnership as well. Traditionally, it’s the advisor or the firm that got it wrong. But clients were involved a lot of the time and now say, “I didn’t know.”

DeVito: But that conversation could go on for months; whether the client should know or not know is a whole other topic.

REVENUE: ORGANIC GROWTH, MARKET APPRECIATION OR BOTH?

Murphy: Fortunately, our revenues are growing. Our approach, much like our earlier discussion, is quality over quantity. Not just in the type of advisor we want, but also in our revenue mix. Our goal is to have about an 11% or 12% growth rate. And that’s a combination of organic and new recruits. We focus on organic growth because it’s probably more valuable, but we also need to recruit new advisors every day. So we’re pleased with the growth. We always want more. But we want to do so responsibly.

DeVito: Last year we grew about 18%. This year we’re up over 30%. It’s probably half-and-half recruiting growth versus internal growth. We’re making a big push to give our advisors more tools and products from a practice management standpoint, which has helped across the board with growth. A lot of the push that we’re getting from the recruiting side is heavily fee-based. It’s been a great few years.

Sullivan: How are you dealing with fee compression?

DeVito: We don’t really deal with [fee compression] dramatically; it’s not a top-of-mind thing for us. It’s really having a broad-based approach to different products and giving our advisors a stable of products that work.

Shepherd: Revenues are very strong; up almost 50% from 2009 to 2010. This year we’re probably tracking another 40% increase on top of that. As a smaller firm, each new advisor we recruit is exponentially more important to us than a larger firm because it has a direct impact. Two years ago, we launched an asset management platform that has driven revenue growth dramatically. Our fee revenues are up well over 100% year-over-year for the last three years. The goal is to get to 60% recurring. We’re probably in the low fifties now.

McEvoy: Depending on the product line, we’re up anywhere from 8% to 15%. Our revenues are up substantially. We had a pretty aggressive plan from last year to this year. And we’re hitting it at about 14.5 and 15% growth in our revenue on the advisory side.

Sullivan: Are you all a part of the “outsource to us” movement? Do you want them to push as much as they can onto you from an administrative and operational standpoint so they can get in front of reps?

Shepherd: It’s an interesting question we tackle all the time, because we can see the benefits of both sides of the equation. At this point we’ve made the strategic decision not to do so. Our people are entrepreneurial people. They enjoy having their own business and they don’t look to us for that. I think they look to us more, as Ralph was saying, from a practice management perspective of, “how can we make them run their business more efficiently and be a consultant to that process?”

DeVito: It’s been eye-opening for a lot our reps. We have staff go out to every office to actually sit down with them and find out exactly what they do, build the plan around what their goals are and show them the experiences and it’s really, really helped people jump-start their businesses.

McEvoy: We’ve actually put all of our marketing communications and materials on a site. They are all pre-approved from customer letters to prospecting to mutual fund documentation. All you have to do is go on, grab it and take it and apply it to your business.

Sullivan: What is the utilization rate of the material among the advisors?

McEvoy: It’s 100%. And I’ll tell you why; we’ve clicked in our compliance environment. We’ve said that if you want to have an ad review and all of that done quickly, we put it on a site, but we’ve mandated that the compliance review has to be done there. So we solve two issues. We gave the field what we wanted – what they wanted in terms of the right services and we satisfied a real challenge we have and that was controlling the environment.

Green: Back to revenue for a moment. With the pressures of achieving revenue growth, how do you ensure you don’t stray into dangerous areas, such as with Medical Capital or Provident?

Murphy: I think it’s a great question, because revenue for revenue’s sake can be dangerous. We’re having margin compression everywhere. The cost of doing business today is so much greater than it ever was. You’ve got to be very careful about your sources of revenue and the composition of your revenue. We don’t necessarily look to manage the advisors, but we watch our revenue mix very carefully. We don’t want to be too heavily focused on fee-based because if the market goes down you’re at risk there. You don’t want to be too transactional-oriented, so we’ve got a nice mix of revenue from our perspective: brokerage and fee-based recurring revenue. But we’ve got to do so in a way that generates profits. We can talk about revenue growth all day long, but we all have to keep an eye on the bottom line.

Shepherd: Most advisors believe our source of revenue is the commission they produce. It isn’t necessarily the case. There are other ways broker-dealers make money. One of the things that has helped Founders in the marketplace is we’re transparent with all of that with our advisors. For instance Pershing pays trails on its money market funds. We pay those through to our advisors and the grids. Most broker-dealers keep those things.

McEvoy: Where are you getting money market funds right now? I want to sign up for that.

BUSINESS CONTINUITY: THE ANNIVERSARY OF THE 9/11 ATTACKS

DeVito: One of the girls in my office, her father died in Cantor Fitzgerald. In my neighborhood, in my county, it was just devastating. It has to change you in some way. Did it change the financial services industry? Not much. Not so sure. I don’t think it changed.

Shepherd: I think it reminded people why business continuity plans makes sense. Obviously there were Wall Street firms obliterated, but I don’t think it changed the landscape of financial services as much as it changed the landscape and direction of our country. I didn’t expect the question frankly and glad you asked it though, because it is the single most important geo-political event in my lifetime and, God, I hope we don’t have anything like it ever again. I don’t think it’s made us change how we approach business, but it has changed the way in which we approach investing. Whether it be 9/11 or the next crisis, it certainly makes you think about how you manage assets from a risk management standpoint, rather than just always going for broke.

DeVito: I have been impressed by a number of people on Wall Street who have put themselves out to help others in raising money for the people who got hurt. They have just become so philanthropic and fundraising-oriented; it’s really amazing. They are taking thousands of hours a year to help others.

Murphy: Notwithstanding the tragedy that occurred, what you saw was a nation and a city come together. Competing firms were opening up their offices to firms that didn’t have any place to work. It brought us together as a nation and I think it changed us forever.

McEvoy: From a business side and a personal side it changed me a lot. My son spent three years in the military and then re-enlisted after it happened. So that was the personal world. But it was an affront on capitalism and it was an affront on the financial world. The very thing that brought us together is now being used as a political tool to divide us. I find that very disappointing; not upsetting, but disappointing that political people can take something that was so tragic and that has turned out to be such a banner of strength. The one thing that we’ve got to look at in this organization and the industry and the world we’re in now is to not apologize for what we do. What we do in this business is deliver on dreams. We help educate children. We help get money to people who’ve lost their spouse and we help people achieve things that have a lasting legacy and impact. We’ve got a political environment right now that wants to take Wall Street and, in the broad sense, badger it. I think it’s wrong.

Shepherd: Well to that end, if we could actually get growth in this country again, our businesses are going to go crazy. We all run businesses today to prepare against what we’re fighting against. If we could actually get some tailwinds in this country, get us rolling in the right direction, our business would be job creators—instantly. And I think that’s a metaphor for the whole country right now.

McEvoy: The problem with our world is we want the people to be that rugged individualist again. I take care of myself, I save my money, I’m prudent with it, I raise my family, I make the decisions that are important to me. But, unfortunately, we’re moving back into kind of a victimized environment where people are being told that it’s okay; you need to be taken care of. And that’s got to change if we’re going be the power that we were once.

To read and view more about this year’s winning broker-dealers, and to see who won this honor in previous years, please see our 2011 Broker-Dealers of the Year home page.

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