George Diachok is no stranger to the broker/dealer business. In fact, he retired from it in 2001 after selling the firm, Multi Financial Securities, that he founded in 1981 and ran with his son Russ. But changes in the marketplace, and particularly changes in Multi Financial after its purchase in 1998 by ING, shifted his retirement plans, and now father and son have launched a B/D called Geneos Wealth Management, based in Denver. While you might think that an extended bear market is not the best time to start a new B/D, let alone one that demands high performance from its reps, that’s exactly what the Diachoks have done. Their intent? Build a smallish B/D that rewards high producers, uses the best technology, and gives local branches autonomy. Oh, and encourage impartial attention to clients’ portfolios by prohibiting proprietary investment products.
“[ING] bought us for top dollar and we were very fortunate,” says George Diachok. “They made a lot of promises and paid us cash, and for the first two years it was like the proverbial honeymoon.” But the “impending divorce was worse, because a lot of relationships built up over the years were coming apart.”
The reason? ING grew so fast it put its reps into culture shock, Diachok says. Starting from scratch in 1997, ING was at 10,500 reps by the end of 2000. When the market soured, ING looked for ways to lower expenses. In the fall of 2000, it began consolidating; in the wake of a corporate mandate to cut expenses by 15% to 20%, it decreed all seven B/Ds it owned would be serviced by a single back office–Financial Network, acquired by Aetna in 1996 and thus acquired by ING with its purchase of Aetna in the fall of 2000.
“That was not the way we envisioned it,” says Diachok, referring to the establishment of a single back office for the mushrooming sales force. “It was done unilaterally without talking to anyone.” While he readily acknowledges that that was ING’s prerogative, “we knew there would be a lot of people leaving” because of it. Recalls Diachok, “Half [the reps] in ’98 were unhappy with the acquisition. They had been with PaineWebber and American Express and SunAmerica, and didn’t want [to be part of] a 5,000-man sales force and to be just a number. When ING bought us in April of ’98, we had 375 reps. At the end of ’01, we had 760.”
The Diachoks, not pleased, felt that the consolidation process wasn’t finished. George Diachok theorizes that the seven B/Ds under ING’s wing will evolve to “about three.” However, father and son decided in April 2002 that the company they had sold was going in a different direction than they wanted. And while they thought that the market “was going to turn sooner than it has,” George Diachok says, they decided that the time was ripe to do something about it. “We had already served our no-compete clauses in our contracts. [We told them that we felt] it was best if we got out of their way.”
The 44-year-old Russ and his 76-year-old father decided to take their years of pooled experience and start a new, truly independent company that would offer service at a new level to its reps. But it wasn’t going to be a megafirm, either. The Diachoks chose the boutique approach. In September 2002, Geneos was born.
What Geneos Wants
To be a rep at Geneos, the minimum is $100,000 in gross dealer concessions for an individual and $300,000 for an OSJ branch, “disqualifying 70% of Multi” reps, says George Diachok.
While the Diachoks are gaining reps through referrals and wholesalers, Bob Treadaway, of Irving, Texas, a 40-year veteran of the investment business, also recruits for Geneos. Treadaway says he’s seeking professionals with a broad range of experience, not just stockbrokers or advisors. Reps don’t want to be shifted constantly from office to office for service from their B/D, and do want people at the home office who know their names and are familiar with their businesses. In addition, Treadaway questions whether the huge firms are doing the right thing by their reps and by the reps’ clients. “The INGs and AIGs have bought wonderful firms,” he says, “and they’re turning them into slaves. They’re not letting them do what’s best for their clients” because of the pressure they exert on reps.
Dana Ripley, director of external communications for ING, declined to respond directly to Treadaway’s assertions, but did say, “While we wish the Diachoks the best of luck in their new pursuit, we firmly believe that ING is focused on its clients and we look forward to proving the success of that strategy in the marketplace.”