Best in the Business

Times have been tough. Ask anybody in the business and she’ll tell you that portfolio returns are down and clients are nervous. While almost everyone feels the pain of the bear market, it’s hard to quantify the discomfort. Cerulli Associates’ Senior Analyst Matt McGinness says that despite information gathered for a new report on the state of the retail RIA market (see “Survey Says,” page 20), there’s no trustworthy number for how the market has affected advisors’ business.

This doesn’t mean that the business pressure isn’t real. Advisors know this as do reps’ broker/dealers. One tough year has followed another, unnerving even some of the most sanguine clients. But as the saying goes, when the going gets tough, the tough get going. The 2002 Broker/Dealers of the Year obviously have this ability.

Repeat Winners, Again

This was the 12th year that Investment Advisor has asked its readers who are reps of broker/dealers to rate their B/Ds on a host of issues–everything from marketing support to compliance to how well the B/D’s home office keeps open the lines of communications with reps. This year, more than 3,200 readers responded, with the ballots tallied by Research Editor Liana Camporeale. One of the interesting observations about this poll is noting each year which firms finish where. Company growth accounts for some jockeying for position, while the economy and changes in ownership can account for others. Clearly some broker/dealers make greater efforts to encourage their reps to participate in the reader poll (though this year, as in the past, some companies go over the line in their encouragement, resulting in some ballots being invalidated when we judge them not to have been individually filled out by, and sent directly from, reps). Those B/Ds that have the greatest rep satisfaction rate–determined by how many reps give their B/D the highest ratings–are awarded this coveted prize.

Some companies hang on to the top slot; some miss it by a hair one year and then come roaring back the next. Some win years in a row, but in different divisions. We have four repeat winners in 2002, though not all won in 2001.

Division I (comprising broker/dealers with less than 200 reps) was reclaimed this year by Signal Securities, Inc., which last won in 2000. Last year’s winner in Division I was NEXT Financial Group, Inc., but due to an explosive growth in number of reps (it went from 161 in 2001 to 270 in 2002), NEXT moved into Division II (200-499 reps), where it again reached the top spot. Division III’s winner this year (for companies with 500-999 reps) was Commonwealth Financial Network, and Division IV (for B/Ds with more than 1000 reps) was taken by FSC Securities Corp.

What might surprise you is how often the same companies have won. This year every winner was a returning champion. NEXT’s first victory was just last year, but Signal has won six times in 12 years. Commonwealth has won eight times, and FSC five (although the last time FSC placed at the top was in 1996).

What does this say about the companies that take the top prize in their divisions? Apparently quite a lot, according to the voters. We talked both to the leaders of the B/Ds and to some of the reps themselves (see “The Reps Speak” sidebars) to get a feel for what’s been going right in this grisly (or would that be grizzly?) market.

When the Blue Chips Are Down:Signal Securities, Division I

Jerry Singleton, president of Signal Securities, Inc., based in Ft. Worth, Texas, acknowledges that the market over the last two years has been “crummy. I could use stronger words, but you can’t print ‘em,” he says. Despite that, however, Singleton says that Signal has had very few unhappy customers, which he attributes to the company’s having done “the right things” from the outset. Most clients, he says, are in long-term balanced portfolios that have not needed many adjustments. That has “reaffirmed our long-term balanced financial planning strategy that we’ve used from day one,” he points out. Client accounts are down, he acknowledges, but nowhere near as much as the market. “It’s been a matter of reevaluating and deciding that where we are is where we want to be, and just waiting for all this muckety-muck to pass.”

One way that Signal has coped with the one-two punches of a bear market and the September 11 disaster is to focus on “service, service, service,” says Singleton. It is the answer to the question put to him by competitor friends, who he says ask him how Signal merits such confidence from its reps. Signal has moved to lessen the paperwork load for reps by putting forms on the Web, paying commissions and fees electronically, and reducing overall paperwork requirements. The company has also begun an education initiative for reps whose practices are within 60 miles of the Signal home office in Fort Worth, holding bimonthly meetings on new products as well as education on issues like tax law changes. Singleton says the meetings are very popular.

It may be unusual to increase staff during difficult times, but Singleton says Signal has done exactly that. One example: adding a fixed income specialist for reps whose clients want to invest in vehicles like brokered CDs and other fixed income products. In this market, the specialist is a very busy guy, says Singleton. Signal also has insurance specialists and an asset allocation specialist, so that representatives have another educated opinion and a person to stimulate a marketing idea or help with a particular client concern.

Providing access to senior management has always been a priority, Singleton says. “We take the representatives’ calls, and we return them,” he says, even though the skittish market and the concerns prompted by 9/11 saw an increase in the number of calls from reps looking for “reassurance.” Singleton explains that many of Signal’s reps are one- or two-person offices, and at times they tend to feel more isolated than if they were working in a wirehouse bullpen.

Will Signal be changing in the future? Yes and no, says Singleton. “While you can’t ignore this market and the trauma associated with it, it really hasn’t changed our business model or our plans, except to make it a lot more defensive in nature,” he says, adding that young people have never seen a market like this. But one thing he’d like to do is raise awareness within the business community of Signal’s existence: “most of our people have come to us through referrals.” Singleton would like Signal to get wider recognition and thus attract more new reps. With a sixth win as B/D of the year, can that be far behind?

NEXT Time: NEXT Financial Group, Division II

Jeff Auld, president of NEXT Financial Group, Inc., of Houston, is delighted with his company’s second victory in a row. “I know of no other firm,” he says, “that is actually owned by its reps. For people who are independent–and many reps are fiercely independent by nature; they’re entrepreneurs–this kind of independence is extremely appealing.” At least half of NEXT’s reps are shareholders, he says, but whether the reps are shareholders or not, they have a voice in the company. “We create committees to provide input and direction on a number of issues: services, acquisitions, technology.” Those committees help to keep Auld and the NEXT board in touch with reps.

But independence isn’t the sole attraction of NEXT, according to Auld. Simple steps, such as returning phone calls, are one way the home office staff keeps reps happy. In fact, says Auld, reps who have come to NEXT from other firms say those returned calls are one of the company’s defining characteristics.

Cutting costs for reps is a goal, too. Auld says that NEXT tries its best to reduce costs for reps, pointing out that it was recently able to get a decrease in transaction charges from its clearing firm. “Our firm has grown tremendously in the last two years,” says Auld, “and [trading] volume has grown. Our clearing firm felt justified in reducing individual ticket charges in some areas. We passed 100% of those reductions on to reps.”

In fact, any fees charged to reps by NEXT, whether they are licensing, E&O, technology-related, or ticket charges, are passed on to the reps at NEXT’s cost, claims Auld. “I don’t know of any other firm that doesn’t have a markup built into its transaction charges.”