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September 01, 2001 at 08:00 PM
Every year we ask you, our readers, to tell us what you think about your broker/dealer, to rate its performance in key areas such as compliance, payouts, and technology. Every year you oblige, providing your peers with benchmarks by which to measure their own B/Ds’ performance. It’s time to look at the new tallies, and to take a closer look at the winners you’ve chosen.
We have three repeat winners this year: Brecek & Young Advisors in Division II, Commonwealth Financial Network in Division III, and Investors Capital in Division IV. NEXT Financial is a first-time winner in the smallest grouping, Division I. More than 2,300 reps took the time to fill out our poll and deliver it to us.
What’s the atmosphere in which our winners have performed so well? The industry as a whole has been quiet, according to Mitch Vigeveno of The Turning Point, a consulting and recruiting firm in Clearwater, Florida. In fact, according to Vigeveno, “It’s a period where people are stuck in the mud.” Brokers are trying not to disturb their clients, he says, especially since many clients are already disturbed by the markets’ performance over the past 18 months. Fee revenues are down, because assets under management on which those fees are charged are down.
If there’s one area where there is intensity, it might be among those who do move from one B/D to another, according to Carol Sandstrom, a recruiter for Sentra Securities, also in Clearwater, Florida. “Reps are still looking for more technology and more service. It’s almost like road rage and air rage,” she says. “Things build up over a period of time, and the reps are on a shorter fuse if something doesn’t work out the way they thought, service-wise. They’re more likely now to make an issue out of it sooner rather than later.”
Trying to keep reps happy is one way that NEXT Financial Group tries to distinguish itself from its competitors. President Jeff Auld says that if a NEXT rep calls the front office to have something done, such as a distribution from a client’s account, the rep won’t have to make a note to call back in a day or so to see if the check’s been issued. “[Reps] don’t have to routinely worry when they’re sending in legal documents, trust documents, or estate documentation that their paperwork will get separated from new account documentation and get lost,” says Auld. “There’s attention to service here. That’s what I hear all the time.” That attention to detail is part of the reason NEXT was a first-time Broker/Dealer of the Year in Division I, which covers B/Ds with less than 200 reps.
As an example of his staff’s attention to detail, Auld relates a morning visit to the operations area, where he heard a trader call a rep “because she had received a market order early in the morning on a particular stock. She had recalled that the previous afternoon, the rep had called to get some quotes on this stock and wondered where they should make a limit order.” The trader took the time to call the rep to verify that he really wanted a market order rather than a limit order, since they had discussed the limit order the day before.
Such devotion to accuracy and service is partly because the people in the back office are also owners of the firm. Most own stock, says Auld, but that’s not just why they care about doing business right. “They just seem to develop relationships with reps in the field, and they care a lot.” Those two reasons, he says, “are the only reasons I can think of to justify the level of service that we have here.”
Reps are also owners, he points out. “A lot of firms talk about independence, but our firm is unique because it was founded by, managed by, and owned by its reps. It’s not owned by a mutual fund company or an insurance company that’s controlling our destiny. My board [is made up of] active selling reps that work in our branch offices every day and come together once a month to make decisions. Even reps not on the board are members of committees that we consult with, get input from, and take real votes from to determine the interests of reps in the field.” Any rep can own stock in the firm, he says; it’s not “just doled out to the top.” That attracts people to NEXT, Auld argues, because of the opportunity for real ownership and a voice in the running of the company.
| Division I: NEXT Financial Group |
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| NEXT was founded by a group of reps who had worked for Advantage Capital in Houston. As President Jeff Auld tells it, these reps had been with the company for years, and several of them had followed their fathers’ footsteps to Advantage. In other words, this was a stable group not prone to company-hopping. But the atmosphere at the company had changed to the point that the group was no longer happy. They began to look around for another B/D and visited several firms, and held some serious discussions. In the end, the group decided that the only way they would be satisfied with the level of control and service at their broker/dealer was to start their own. So they did. “The firm was incorporated in 1998,” says Auld, “but it was early 1999 when NASD approved NEXT as a broker/dealer.” There were a couple of dozen in the group that originally left Advantage, he says, and by the end of 1999 there were 78 at NEXT. That number nearly doubled by the end of 2000, and another 50 reps signed on in the first half of this year alone. Auld himself was a retail broker, a registered rep with Edward Jones in Iowa. He left that behind to help start a firm called First Bankers Securities Corp., which offered brokerage services in banks. Auld headed one firm after another, with success, but when his position at Magna Banks in St. Louis was consolidated due to a merger, he found himself on the move again. “I was introduced by a mutual friend to Gordon D’Angelo [one of the firm's founders],” Auld remembers. “He described the firm, and it sounded very interesting, but I was reluctant to move my family again.” He wasn’t anxious, either, to hear another presentation. “I’d made dozens, if not hundreds, of these presentations,” Auld says, “and they all pretty much seemed to be the same. [They were] suits, successful in their business, but [they] didn’t know anything about my business.” Still, he went to Houston, where he spent four hours talking to the board at NEXT. “They were all men in this business,” he recalls. “They spent a few hours a month doing board business, but all do this [brokerage work]. About my age, some had been in business longer than I had. I left the meeting knowing that I wanted to work for them.”–Marlene Y. Satter |
Ownership and voice are important to the people at NEXT, since many are there because they felt a lack of control at their previous B/D. Says NEXT rep Hal Tomlinson of HW Tomlinson Moneymaster in Woodland Park, Colorado, “I had been with a B/D that had a family atmosphere. They knew the rep and his needs, and gave him or her personalized attention and service. That started disappearing when my B/D was purchased by a larger, more impersonal firm. I began looking for that kind of firm again and found it in NEXT.” Testimonials like Tomlison’s are one way that Auld sells the firm to prospective reps.
Growing the firm is important to NEXT, and while the broker/dealer is considering the idea of acquiring other firms, Auld says that the company is growing at a pretty fair rate without such a drastic step. “When we look at the cost of acquiring a firm that maybe has 50 or 100 reps, and compare that with the fact that we’ve added 50 reps this year just by telling our story–acquisition costs are high,” he says. And to top it off, he says, even though NEXT has looked at a number of firms, the fit hasn’t been right.
Usually all Auld says is necessary to attract new reps is to tell the company’s story. The independence factor really resonates. “Our firm isn’t right for everybody,” he says. “Many have high payouts, and there are a lot that clear through Pershing and have similarly good technology. What appeals to reps is the idea that it is truly independent.” He doesn’t rely on only his ability to “sell” the company, though; he’ll have a prospect call a rep to hear how enthusiastic that rep is to be with NEXT. They could certainly call Tomlinson, as we did (not at Auld’s prompting, by the way). “This firm was formed by independent reps just like me,” notes Tomlinson. “They think like me, work like me, and expect the same things from the firm as I do. [It] wasn’t formed by some guys in an ivory tower in some glass building, but by people who actually work with clients and make their living in the same manner as I do. NEXT Financial is truly a broker’s broker/dealer.”
To Grow Or Not to Grow
The growth issue–whether and how to grow–is something that all our winners have to face. The winning B/D in Division II–firms with from 200 to 500 reps–has addressed growth in a head-on way. In 1999, Brecek & Young won B/D of the Year in Division I. Last year it won again, even though it had grown to become a Division II firm. This year BYA won again, but it’s nearing the upper limits of the division since it now can count 475 reps.
And that’s exactly the plan, according to BYA President Roland Brecek. With the acquisition earlier this year of Donahue Securities in Cincinnati, Brecek & Young
| Division II: Brecek & Young Advisors, Inc. |
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| The accent is on training at Brecek & Young, and that’s hardly surprising when you consider that Roland Brecek is a former school psychologist. Brecek and two of his business partners started out in the financial services field as moonlighting educators. They worked, naturally enough, with 403(b)s, and all made substantially more money in their part-time jobs than they did in education. Eventually they went full-time into the financial services industry. Brecek & Young began life as Transamerica Financial Resources’ largest office of supervisory jurisdiction (OSJ) in the U.S. In 1996, through a contractual arrangement, the office formed its own B/D, and started out with 75 reps. They’ve grown substantially in the short time since. Their acquisition of Donahue Securities in Cincinnati in March of this year was beneficial in a number of ways to Brecek & Young, not the least of which was acquiring more reps. According to Brecek, there were several reasons that the two companies managed to join cultures so easily. First is the fact that one of Donahue’s market niches was the 403(b) market, something B&Y understands very well indeed. A second market niche was “an orientation toward working with tax professionals.” BYA and Donahue also cleared through the same firm, National Financial, and had a fee orientation. The two cultures have come together well, Brecek says, paving the way for future growth if other suitable matches are found. There are three reasons, Brecek says, why people leave their old B/Ds and come to BYA. The first is “an unfriendly compliance department.” Brecek says that at BYA, “we feel we do everything correctly but we have a friendlier approach.” Second, he says, is reps’ business that is not processed correctly at their current firms, and third is not getting paid correctly. From a friendlier atmosphere to e-mail confirmations of transactions to paying reps correctly, BYA takes whatever steps it can to make sure that its reps stay content. “I think that if you treat reps correctly and fairly,” says Brecek, “they won’t want to leave. And that’s why we’ve won a third time in a row.”–Marlene Y. Satter |
acquired 225 new reps. “We hired 20 employees” to handle the extra reps, says Brecek of BYA’s home-office support. While BYA intends to keep on growing, it’s just as important to “maintain an improved level of service to our existing reps as we continue to grow,” says Brecek. “We would forego growth if we thought that was interfering with what we provide to our reps.”
One of the things BYA provides to its reps is the personal touch. “Other broker/dealers are counting on technology to communicate,” says Brecek. “We’ve chosen a different path in the way we work with reps.” BYA has a council of reps with whom management meets twice a year. The council provides input on running the company and on the challenges reps face. The company also offers plenty of training sessions: In addition to its company-wide four-day annual meeting/training session, BYA offers quarterly full-day sessions at a variety of locations. And the home office staff stays in close contact through case support managers who work with reps to help product sales. Sales levels are rewarded with “carrots rather than sticks,” says Brecek. Those carrots include sending 15% of the sales force this year to Bermuda as a bonus. Next year’s destination? Cancun.
While BYA has made a concerted effort not to overly rely on technology for communication with its reps, Brecek is quick to point out that technology is not being ignored. In fact, Brecek thinks that some concentration on technology will be necessary to win next year’s award. BYA is already working on it. “We’re excited about EZApps,” says Brecek of a piece of proprietary software that completes application forms for reps. The software is on its third revision, and completes a variety of forms–”correctly,” Brecek adds, “which saves us a lot of work, too”–so that reps don’t have to. “It makes writing business very easy,” he says. “Another thing we’re unveiling now is an online commission process for reps so they can view all their commissions online.” This is something that many reps from many firms have been clamoring for, and they’ve told us so on their survey responses. Brecek & Young reps will also be able to see position statements for clients and an online production history, and be able to use a new online financial planning program.
BYA is also stressing fee-based programs. “We have a variety of registered investment advisory and commission alternative programs,” he notes. “Reps can charge asset-based fees rather than commissions online. Those have really taken off. They’re over 25% of our business.”
Another innovation scheduled for rollout is a succession planning program to enable reps to acquire other practices or sell their own. “The input council team thought it was very important,” says Brecek.
Acquisitions are still on BYA’s mind as well. “We’re very interested in acquiring additional smaller broker/dealers,” says Brecek. “We’re also very interested in bringing in experienced reps who may be displeased” with their current B/Ds, he says. Considering how happy BYA is with the acquisition it made this year–”We had an
| Division III: Commonwealth Financial Network |
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| Commonwealth Financial was begun by a financial planner. that’s what Joe Deitch was in 1979 when he decided that he was “fed up” with the conflicts of interest his own B/D had. “It was the best of times and the worst of times,” says Deitch about the early days at his firm, where he is now chairman and CEO. Looking back, he describes himself as “na?ve” to think that if he started a firm free of the problems he suffered with his own B/D, then others like himself “would line up.” But he wasn’t wrong. “We were doubling every year,” he says, laughing. “We went from two reps to four reps.” But ultimately, he declares, “You catch up, get better at what you do, attract a great team, and the team performs better and better every year and keeps raising the bar.” Both Deitch and Commonwealth President Peter Wheeler “grew up in the ’60s and have enormously high ideals,” says Deitch. “And we are nuts about integrity. We care more about integrity than anything.” Deitch has been involved in financial services since 1974 and began his own financial planning firm, The Cambridge Group, in Cambridge, Massachusetts, in 1978. With the founding of Commonwealth, though, Deitch turned a corner. “In the mid-1980s,” Deitch remembers, “I realized that while I was a wonderful salesperson and financial planner, I had no training in managing a business, and I went back to school.” That was the Harvard Business School, where he stayed in the dorm for a month every year for three years. Once Deitch had graduated, he says, Commonwealth started a practice management department. “I was typical of our brokers,” he says, “a financial expert, technically proficient, but with no training in running a business. The vast majority were in the same boat. We consult to our reps on how to grow and manage a business. We see them as business owners, not as salespeople.” Of his drive to have Commonwealth be the very best, Deitch says, “At the end of the day when you look back at what you have accomplished, it’s much more satisfying, motivating, encouraging to have done great work. It feels much better to have your customers love you than to tolerate you or less.”–Marlene Y. Satter |
extremely close fit with our acquired company [Donahue Securities]“–it’s more than ready to do it again.
BYA has changed its structure a bit due to the acquisition of Donahue. The back office is now split between Folsom, California, and Cincinnati. “It’s worked out very well,” says Brecek. “There are 57 employees between those two locations. Our compliance unit is in Cincinnati, [as are] the business processors and part of the management team.” This enables the company to serve East, Midwest, and West Coast reps.
“There aren’t a lot of independent broker/dealers left any more,” says Roland Brecek. “That makes us attractive to reps who want to sell what they feel is appropriate for their clients, and it gives reps a say in how we run our business.”
Regardless of how BYA expands, it intends to maintain its level of service to reps. The current rep-to-staff ratio, Brecek says, is less than 10 to one, “and we want to maintain that ratio. We’ve had very good luck in hiring qualified employees” for the home office, he says. “They’re both securities and insurance licensed, and have an incentive to help the reps do well. They share 25% of company profits on a pro rata basis, and can qualify for company trips as well.”
Service Star
That theme–providing service to reps–is shared by the leader of Commonwealth Financial Network, the Broker/Dealer of the Year in Division III, which covers B/Ds with from 500 to 999 reps. Chairman and CEO Joe Deitch is very up-front about Commonwealth’s goal. It’s to provide the best service in the universe.
If that sounds ambitious, consider that Deitch regards broker/dealers as “an interesting lot, because they exist by government fiat. I was always concerned that our brokers used us because they had to. A long time ago I would ask them, ‘If you didn’t have to use a broker/dealer, would you?’” Many said yes, but nonetheless the issue bothered Deitch, to the extent that he became highly concerned about the service level provided to reps. “I’ve thought that our business model had to be such that we would provide services that would be better, cheaper, and faster than [reps] could do themselves,” he says, “so that they would choose to use us even if they didn’t have to.”
