In evaluating a mutual fund or any potential investment, the prudent advisor always looks at the track record of the investment. The longer it is, the better, not simply because it gives you more data points to compare. No, the true mettle of an investment, or of a person for that matter, is how well it, and he, performs during difficult times. If a rising tide lifts all boats, then in good times it’s relatively easy to be a good performer. In more trying times, well, that’s another matter. That’s why the winners of this year’s “Broker/Dealer of the Year” honors should feel particularly gratified. After suffering through yearsworst bear market since the Great Depression, investors’ attitudes remain depressed, B/Ds years of the worst bear market since the Great Depression, investors’ attitudes remain depressed.

B/Ds are eyeing each rep’s production more closely, and there are plenty of brokers who are out of work. So what does it take to win the highest ratings from your own representatives (nearly 4,000 voted this year) in these grim times, when even six months of relentlessly rising markets have failed to dispel the gloom?

Well, it turns out that looking for striking similarities among this years Broker/Dealers of the Year–Century Securities, NEXT Financial, Cambridge Investment Research, and InterSecurities–is a difficult task. As always, the winners differ in size: Century had 139 reps as of our annual B/D directory in April, while InterSecurities had 2,300. They differ in ownership structure: Century is the independent B/D arm of a regional broker/dealer (Stifel Nicolaus) while NEXT is largely owned by its reps and employees.

What about products and services? Is there some pattern there? Well, Cambridge gets high marks from its reps for its fee-based programs, while InterSecurities gets a majority of its revenue from selling variable annuities. Is it payout, or marketing programs, or the good looks of its presidents? Again, no pattern is discernible. About the only constant is that their own reps gave all four winners high marks for fostering good communications between representatives and the home office. Oh, and one other thing–the B/Ds all got positive scores for a negative: The representatives say these B/Ds don’t get in the way of reps running their practices they way they wan to, and serving their clients. For further insights into what makes these winners tick, how they were chosen for this honor, and what’s important in the broker/dealer community in these still challenging times, read on. –James J. Green

Division I:Century Securities Associates, Inc Small Size, High Touch

Having a big brother helps Century Securities keep reps’ satisfaction with service high

By William Glasgall

With estimated 2003 revenues of between $8 million and $10 million, and just $1 billion in client assets, Century Securities Associates, Inc. is positively diminutive when compared with such independent broker/dealer industry giants as LPL Financial, AIG Advisor Group, or Raymond James Financial Services. But Century is not as small as it seems.

As a unit of Stifel Financial Corp. (the publicly traded holding company for the 113-year-old regional brokerage firm Stifel Nicolaus), Century boasts that it makes available to its 142 independent reps the full array of products and services that any of its 440-broker staff can offer. In fact, Stifel President Scott B. McCuaig refers to Century’s reps as “full-service independent contractors.”

It is that emphasis on service that sets Century apart, agrees Michele Jamison, an independent rep and manager of the Century office in Grand Rapids, Michigan. Primarily a commissioned broker, Jamison moved over from Stifel to Century in 2000 after the regional firm lifted its previous ban on its own reps shifting to the independent B/D. But other than an increased payout, Jamison saw little difference in the way she did business. “When I moved, the only things that changed were my address and phone number,” she says.

You Are the Customer

Jamison buys a lot of bonds for her income-oriented clients, and finds great satisfaction in her ability to phone the Stifel trading desk directly whenever she can’t find what she needs on her computer screen. “You can talk to anyone,” she notes. “I call, and they find it for me.” That easy access stems from the firm’s philosophy that “we view the broker as the customer,” says Terry D. Frank, the Century first vice-president who manages the B/D under McCuaig. “They have access to all [of Stifel's] product managers,” he adds, even in such complex areas as survivorship life insurance.

Century draws upon Stifel in other critical ways as well. Like Raymond James’ independent B/D arm, which clears through its affiliated regional brokerage firm, Century clears through its larger parent, whose revenues came to $194 million last year. This, Frank notes, enables Century to keep trading costs low–ticket charges on listed and NASD stocks are $15, plus 1.5 cents per share.

If they wish, Century Securities advisors can also log on to Stifel’s intranet, which offers live quotes, research from Goldman Sachs, Standard & Poor’s, and other firms, as well as the ability to view client accounts in real time. In addition, clients of Century reps can trade online via Stifel’s platform. And Stifel staffers are always available to solve any problems that might pop up at Century. “If it gets broken, they walk across the hallway and fix it,” says Doug Westall, a Century rep in Chesterfield, Missouri, who manages $60 million in client assets.

Looking for “Young Guys”

While Westall came to Century via the purchase of another rep’s practice, Frank gets much of his talent from the ranks of Wall Street brokers, “young guys, four or five years in the business,” who are generating $100,000 to $200,000 in gross dealer commissions. That’s enough to make a nice living at Century’s average 76% payout, but perhaps not enough to satisfy the wirehouses’ more aggressive revenue targets.

After one recent Friday afternoon “house-cleaning” at Morgan Stanley, Frank recalls, “we got 27 calls from brokers and hired three.” Unlike some other B/Ds that recruit heavily, however, Frank will not provide forgivable loans to lure brokers to his camp. At best, he will offer accelerated payouts–say, up to 85%–for a rep’s first six months.

Century also does not encourage its reps to become registered investment advisors, urging them instead to use the B/D’s corporate RIA for fee-based business. And while McCuaig boasts about the comprehensive nature of Century’s fee-based programs–”you can wrap a mutual fund, a manager, or yourself,” he says–Westall thinks that Century’s own fees should be lower. “They could use cheaper platforms for fee-based practices,” he says, noting that is why he manages his fee-based business through his in-house RIA, Pension Administrators & Consultants Inc.

But Westall also concedes that many Century reps, including a number of his own associates, remain content with their B/D’s fee-based offerings. Indeed, says Jamison, Century “is an awesome firm. The service we receive is infinitely better than you’d receive anywhere else.” In this highly competitive business, it’s nice to have a muscular bigger brother when you’re one of the smaller kids on the block.

Division II: NEXT Financial Group Inc. Building on Success

Jeff Auld strives to keep NEXT delivering sterling service to its growing number of reps. The reps appreciate the effort

by Megan L. Fowler

It’s 7:30 on a Tuesday morning and Jeff Auld, president of Houston-based NEXT Financial Group, Inc., is on his way to the office. After spending most of his morning commute checking his voice mail, Auld will spend much of the rest of his 10-hour day on the phone. For the last two years, NEXT representatives have given Auld and his firm the highest marks for customer service and compliance in the IA “Broker/Dealer of the Year” reader poll, and for the third year in a row, NEXT again has something to celebrate. Winning another Broker/Dealer of the Year award is, of course, exciting, Auld says, but this year it’s even sweeter. “The real struggle–and what makes winning this year even more rewarding–is that it is difficult to grow and maintain the same level of personal assistance,” he says. “About a third of our reps are shareholders, so their needs and interests are always put first at every level.”

Jeff Jankowski, a planner specializing in retirement and variable annuities in Clearwater, Florida, saw that level of attention first hand when he moved to NEXT about a year ago. The “technology my former broker/dealer offered was way behind and awful to work with,” he recalls. What has made NEXT so successful, Jankowski says, is the fact that the company is based on what the reps want: “A lot of B/D’s align themselves so closely with the letter of the law and the NASD” rather than working with their reps to make their lives easier. “If you have a compliance issue they won’t just say no to something,” he says. “They will offer solutions or alternatives to your problem.”

Come September 1, NEXT is expected to house nearly 400 reps (a far cry from the 160 or so reps Auld reported to in 2001), will have completely implemented online account aggregation technology, and will continue to increase resources to the home office to keep up with rep demand.

After years of running an accounting firm and working side by side with a financial planner, Mary Clark of Monroe, Michigan, had noticed that strange things were happening to her clients’ accounts. To better understand what was going on, Clark turned planning into a part-time job, and signed on with the same large broker/dealer as her co-worker. It was then that “I really started to notice what she was doing and I realized I couldn’t go along with it,” Clark says. Ethical concerns and instances of not putting the client’s needs first became increasingly worrisome. She decided to leave that B/D but keep her planning clients, so she started a search for a new B/D. She ended up with NEXT, where she feels more confident about the company’s approach to selling and training. She hasn’t looked back. “Maybe it’s because they’re smaller, but you can pick up the phone and get an answer,” she says, “and that made the transition very easy for me.”

Like Southwest Airlines and UPS, Auld believes that even though NEXT’s success has a lot to do with its reps also being owners. Yet he does face a unique set of challenges. “Think of it like a professional sports team where the players also owned the team and not just worked for it. Don’t you think they might play harder and be a little more dedicated? But the challenge is that since the owners are on the team, you have an awful lot of coaches,” he says. “So we give everyone a voice, but all that input is sometimes challenging to manage.”

Early this year, Cary Cowan, an RIA in St. Augustine, Florida, switched over to NEXT after his B/D was purchased and he began to worry about his firm’s independence. “There were certain decisions they made for the betterment of their overall operation that I didn’t want to live with,” he says. So he left and quickly became very fond of his new B/D. “NEXT is truly for the independent broker and they were very good at training my staff in complying with their way of doing things,” he says. “I think their genuineness and their desire to bring the best of what is available to their reps is an important ingredient. I look for integrity and I feel like Jeff and all the people that work at his office display a lot of that.”

Keeping the infrastructure and back office growing at the same pace as its reps, is one of Auld’s top priorities this year, he says. “If I can’t do that and we get so large that we can no longer provide that personal touch the reps got so excited about in the first place, then I am no better than any other firm.”

Additionally, Auld hopes to move his firm toward a paperless environment. “We already have brokerage statements and confirms stored electronically,” he says. “And soon we will implement an imaging system for incoming information.” Perhaps it’s that commitment to keep moving forward that keeps NEXT’s reps more than content.

Division III: Cambridge Investment Research, Inc.Voting With Their Fees

Cambridge gets high marks from reps for its strict compliance and extensive–and cheap–

fee-based programs

By Melanie Waddell

While Cambridge Investment Research Inc.’s first-time win as Investment Advisor “Broker/Dealer of Year” in Division III is “extremely gratifying,” says company president and CEO Eric Schwartz, Cambridge is no stranger to kudos from its reps. The B/D has performed its own anonymous poll of advisors over the last 10 years, and has never received “an overall service rating of less than nine out of a high score of 10,” he says.

For the last two years, the Fairfield, Iowa-based firm’s compliance department has gotten the highest praise from advisors, Schwartz says. Such acclaim bodes well for Cambridge, he says, since reps that abandon their B/D and move to Cambridge often cite a poorly run compliance department as one of their primary reasons for leaving.

It was Cambridge’s stellar compliance department that convinced Thomas McAvoy, president of Dime Investment Services in Norwich, Connecticut, to leave a B/D that he helped found with other mutual savings banks in the state. Coming from the heavily regulated banking industry, says McAvoy–who’s also VP of Dime Bank–Dime had reservations about leaving “the comfort environment of a B/D that was closely associated with a bank” and joining a small, independent brokerage firm like Cambridge. But after careful review, he says, “we had great confidence in [Cambridge's] back-office and compliance department.”

Fee Appeal, Too

Cambridge’s prowess in fee-based programs is also a big draw for reps. “If you look at what distinguishes [Cambridge] from our competitors, it’s clearly the amount of revenue in fees that we generate,” Schwartz says. Forty-one percent of Cambridge’s revenue comes from fee-based programs. In fact, Schwartz believes Cambridge’s “flexible and aggressive” pricing on its fee programs–offering a payout up to 95%–as well as the B/D’s open architecture helped Cambridge nudge ahead of last year’s Division III winner, Commonwealth Financial (Commonwealth was a close second this year to Cambridge; see sidebar on page 54). Schwartz says the competitive pricing on Cambridge’s offerings, including its 12 trading platforms, can’t be beat. For instance, Cambridge’s Managed Accounts Program only charges 5 basis points, whereas most other B/Ds charge 15 to 20 bps for similar in-house programs.

Dime’s McAvoy says he chose Cambridge over the larger independent B/Ds because of Cambridge’s flexible platform, and because the smaller firm could offer more “personal attention” in helping Dime build its investment services business. Because Cambridge’s open architecture allows reps to manage money on a dozen platforms, “I was able to see a variety of ways that our [investment] business could grow,” McAvoy says. And Dime was already clearing trades through Pershing, which Cambridge also uses along with Fidelity’s National Financial.

What can make or break a B/D’s relationship with its reps, Schwartz says, is service. “Great fee programs are important to reps,” he says, but on a day-to-day basis, reps ultimately want to know they won’t be “pulling their hair out because [the B/D] loses checks or doesn’t respond” to their phone calls. McAvoy says Cambridge’s service philosophy is a lot like Dime’s: “At Dime Bank, we say that when you’re a customer, you are a member of the Dime family. Meeting customers’ needs is essential. I found that to be the same at Cambridge.” McAvoy says he also likes the fact that he can pick up the phone and call Schwartz directly.

Joshua Schwartz, principal of Retirement Plan Advisors in Chicago, agrees that Cambridge’s service is great, but he’s most impressed with how Cambridge treats its reps as business partners. “When you have a marketing or investment strategy idea,” he says, Cambridge recognizes that “you’re a licensed, experienced, and intelligent person.” Instead of dismissing the rep’s suggestions, the Chicago planner says Cambridge tries to incorporate them into its business model.

Another Cambridge plus is its “great people,” planner Schwartz says. “Resolving problems is very comfortable because you’re dealing with people who are easy to work with.”

Eric Schwartz says reps have also noticed that the B/D is devoting more money to internal technology. Two years ago, he says, “we didn’t have the budget” to develop new technology. But Cambridge has now doubled its technology budget, and is coming out with innovative products like an imaging service that allows reps to send electronic files to Cambridge. Says planner Schwartz, “Cambridge’s technology is strong and growing, but they don’t lose sight of personal service.”

The imaging service “brings reps’ offices 80% of the way to a paperless office, because not only does it allow them to scan the documents and file them without having filing cabinets, it lets them communicate with us without sending any paper,” says Cambridge’s Schwartz. The system also acts as an “electronic surveillance” by allowing reps to see if “a trade is suitable for a client,” he says.

Cambridge is also updating its antiquated commission accounting system, Schwartz says, to bring it up to speed with the service that’s being offered by larger competitors. And within the next 90 days, Cambridge expects be ready to launch a new 401(k) and 403(b) fee-based platform.

Division IV: InterSecurities, Inc. A Phone Call Away

InterSecurities may be big, but it does even the small things right, like promptly answering phone calls from reps

By Karen Hansen Weese

Alex Lim’s first experience with a large independent broker/dealer was anything but rosy. Client checks got lost, changes of address took eons to meander through the system, and often he’d wait for ages for someone at the home office to pick up his call, let alone answer his questions. Finally, Lim took the plunge and switched broker/dealers.

He chose his new firm well, according to this year’s poll respondents: His new B/D, InterSecurities, Inc. of St. Petersburg, Florida, is a first-time winner in the category for firms with more than 2,000 reps. “I had all kinds of conundrums [at the previous firm],” says the Pikesville, Maryland-based registered rep, “so this is like heaven for me!”

“Heaven” might be overstating things a bit, but Lim does appreciate the firm’s attentiveness to its reps. “I don’t recall ever having to wait a long time on the phone for rep support; you can call from a client’s house and say, ‘Hey, I’m out of the office and I really need this info,’ and they’ll get it for you on the spot,” he says.

He also values the fact that the home office doesn’t expect its reps to be technological whizzes, and doesn’t brush off every question by always referring reps to a Web site. “I’m not exactly a computer expert,” says Lim, “and whenever I get stuck, I can just call an 800 number for tech support and they’ll walk me through everything.”

Elaine Shanley, a Brooklandville, Maryland-based rep, is also a convert from another large independent broker/dealer, and she shares Lim’s enthusiasm. “The rep relations staff is always pleasant and eager to get done what you need done in a timely manner,” she says. Not only is the rep support better than at her previous B/D, says Shanley, she’s also making “so much more money” than she did before.

Yet there are some things that InterSecurities reps would change about their B/D. For instance, some of Lim’s clients would like to be able to execute trades within their own accounts, but InterSecurities’ current set-up does not allow them to do so. “Sometimes you get that client who wants to do things himself right away, instead of waiting for me to get back to the office and do the transaction,” says Lim. And Jeff Frazier, an InterSecurities rep from Sarasota, Florida, says he’d like to see mortgage brokerage services added to the B/D’s product line-up, along with big-name bank trust services rather than the B/D’s current alliance with smaller independent trust companies. Other improvements requested by reps responding to the IA poll included access to offshore funds, stock research, and consolidated statements.

Continuous Improvement

Still, the overall sentiment from InterSecurities reps is one of satisfaction. “They’ve come a long way in the 12 years I’ve been with them, and even in the last three or four years, the improvements have come by leaps and bounds,” says Tom Minella, an InterSecurities branch manager and representative in Dallas. “The Web site and software they provide to reps is just outstanding, and there are presentations for every type of seminar you can imagine, preapproved by the NASD, right there on the Web site,” able to be downloaded on demand. And the firm puts its money where its mouth is, too, he adds, betting on its service, not legal contracts, to keep reps in the fold. “From day one, the contract says, ‘Your clients are yours, and if you should decide to leave us, we will give you a total block transfer to your new firm,’” says Minella. “There aren’t very many other firms that will do that.”

While company president Thomas Moriarty says he’s “extremely proud” that InterSecurities has earned the top-dog title this year, he’s not the type to go strutting down the street loudly proclaiming his firm’s greatness. “I’m pleased with the recognition that this brings to the firm and our representatives, but I also believe that we can always do better.” To that end, the company is beefing up training programs that are already highly touted by reps, and providing seminars that “get our representatives back to the basics of good long-term planning: diversification, asset allocation, asset protection through life insurance,” he says. Many of the programs are now eligible for insurance and CFP continuing education credits, which makes them even more useful to representatives. The company has also launched a succession planning program to help match older reps with younger reps who may want to buy them out, or assist retiring reps in bringing family members into the firm.

Along with its “sister company,” the insurance company Western Reserve Life, InterSecurities is owned by AEGON Insurance Group. InterSecurities’ revenues grew 1% to 2% in 2002, according to Moriarty, and the company has shown “a small profit” each year for the past several years, he says. While the firm fared well given the recent rocky market conditions, some regulatory issues dimmed the picture during the earlier boom years. According to the NASD, InterSecurities paid a fine of $125,000 in April 2003 in response to allegations that, from July 1997 to June 2000, it failed to properly report and track customer complaints, and failed to have adequate procedures in place to govern the sales of variable products. The fine was paid “without admitting or denying the allegations.” Moriarty commented that new systems and procedures implemented since then will prevent a recurrence of such problems.