More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Fee compression, new regulation and industry consolidation are threatening the independent broker-dealer business, especially smaller firms, experts say, leading some to openly question whether these firms will survive.
But boutique broker-dealers are taking the argument head-on, countering that rumors of their death have been greatly exaggerated.
“We are the place for that advisor that does $300,000 of production,” Marshall Leeds, Summit Financial Services Group chairman and chief executive officer, told AdvisorOne on Monday at FSI’s OneVoice Conference in Orlando. “About 40% of that is with insurance products," said Leeds (left), 30% is in fee-based business and the last 30% is mutual funds, stocks and bonds. It’s a good mix.”
Leeds says Summit gets inquiries from insurance companies and private equity firms interested in a potential acquisition of the broker-dealer “on a monthly basis”.
“We always take a look, and we always will take a look, but nothing has caught our interest,” he says. “And we look at acquiring smaller shops ourselves, but at the end of the day, we find that we can recruit and service reps faster than we ever could through acquisition.”
Wall Street Financial Group’s Joe Richard, who oversees approximately 180 reps at the Fairport, NY-based firm, says the skepticism larger firms have about the viability of smaller firms “is a marketing message for them, and a big story for them to be able to tell.”
“I was speaking with [an outside recruiter] about the challenges smaller firms have when it comes to capitalization,” he says. “But at the end of the day, it’s an emotional attachment that members of senior management have at smaller firms. Our founder started the company when he was 27 years old. It’s his baby. He values what he’s built and the relationships that go with it.”
Both men agree on two important keys for survival in the space; the need for outsourcing and a clean compliance record when it comes to the products they approve. The latter, in particular, along with its associated liability, has caused a number of smaller firms to recently close their doors.
“With technology, as an example, it doesn’t make sense for a broker-dealer of our size to develop it in-house,” Leeds says. “It’s much more cost effective and state-of-the-art to outsource to technology providers, often through our clearing firms, Pershing and Wells Fargo. And once I invest in the technology, the updates are automatic, so I don’t have to worry about it being cutting-edged. We offer a technology buffet, and we let the advisors choose the providers they want to go with.”
“We offer Albridge, LaserFiche; the major platforms and components,” Richard adds. “We pushed ahead with technology implementations in 2007 and 2008 when the market was down, and now we have a newer back-end web initiative that is extremely interactive to the point that it’s truly a fully-functioning portal for our reps.”
This outsourcing, combined with low turnover of solidly-performing reps, will mean a secure future for firms like Wall Street Financial, he concludes, provided they stay vigilant with compliance oversight.
“Although we have turnover each year from underperforming reps, in the history of the firm we’ve only lost four reps that we didn’t want to leave. The relationships are key, and as a result, small broker-dealers can and will survive.”
Read more AdvisorOne articles on FSI OneVoice 2012 at our OneVoice home page.
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