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September 01, 2004 at 04:00 AM
In a discussion of any vote held during a Presidential election year, it’s hard not to compare that contest with the Presidential one. In that light, representatives rating their broker/dealer in Investment Advisor’s 14th annual Broker/Dealer of the Year balloting enjoyed many advantages over the American electorate in 2004. For one thing, IA readers have more than two viable candidates to choose from–59 broker/dealers received at least one vote this year. Independent broker/dealer representatives can’t be easily separated into parties, either: They think for themselves, are not shy in sharing their feelings–especially the negative ones–about their broker/dealers, and they’re not averse to voting with their feet when it comes to leaving one B/D for another. So B/D management walks a tightrope–they rely on their reps for revenue and profitability, but know that good reps’ first loyalty is to their clients and their individual practices, so management must continually earn those reps’ hearts and business.
There’s another difference to note: while turnout for Presidential elections has been falling for decades, more voters than ever are participating in the Broker/Dealer of the Year. This year, B/D reps cast 4,879 valid ballots by fax, snail mail, and at www.investmentadvisor.com, or 1,032 more than in 2003, as reported by Research Editor Liana Roberts, who again this year faultlessly coordinated tabulation of the votes.
The winners are as different from each other as night and day in many ways. Three of the four have won multiple times before, but Russ Diachok, president of Geneos, the Division 1 (fewer than 200 reps) Broker/Dealer of the Year, has no reason to apologize for never having won before: the company only began operations in August 2002. Division II (200 to 500 reps) NEXT Financial, led by President Jeff Auld, may be a few years older, but its unique ownership structure (more than a third of its nearly 500 owners are shareholders) and rapid growth sets it apart. Sigma Financial has now won Broker/Dealer of the Year Honors in three different divisions, this year in Division III, reserved for B/Ds with between 500 and 1,000 reps. It’s also the seventh time President Jerry Rydell’s firm has won–eight counting 1991 through 1994, the first four years of the award when we didn’t separate the winners by size but simply listed the top five or six vote getters. Then there’s FSC Securities, the winner in the largest category, Division IV, which covers B/Ds with more than 1,000 reps. As a member of the AIG Advisor Group, FSC is far from small, but its voting reps seem to agree with President Joby Gruber’s characterization of FSC as an “entrepreneurial firm in a corporate wrapper.”
Following are profiles of the winners and their leaders, along with some other data from the polls. Those broker/dealers who failed to reach Olympian heights this year should be consoled. Unlike the Presidential hopefuls, they can vie again next year.
Division I
Geneos Wealth Management
The New Kid, Sort Of
Geneos may only be two years old, but its principals–like russ diachok–are pros who understand what reps want
Unlike the award winners in the larger categories that follow, the B/D voted top dog in Division I this year is a newcomer both to the IA poll winners’ circle and to the broker/dealer industry in general. Founded a mere two years ago–in August 2002–Denver-based Geneos Wealth Management garners top marks among its reps for communication with the home office, for the timely payment of commissions, and for the quality of its management team.
Frank Leyes, an Indianapolis-based rep who switched to Geneos a year ago from LPL, says he was particularly attracted to the firm’s business model, which is small by design and tailored to experienced, high-producing reps. Reps with less than $100,000 in gross dealer concessions need not even apply, but reps who surpass that threshold have the opportunity to become part owners in the B/D through direct stock purchases and stock options offered to them on the basis of their production levels. “I was attracted to the potential to be a part owner in the broker/dealer I am helping to build,” says Leyes. Ten percent of the B/D is currently owned by reps, says Russ Diachok, founder, president, and CEO of Geneos; by 2009, he expects that figure to reach 40%.
Like many of his Geneos colleagues, Leyes also praises the firm’s home office for its excellent communication and willingness to help. “On more than one occasion, I have received a personal phone call from Russ Diachok, just proactively checking in to see how I’m doing,” he says. The compliance department makes an effort to work with reps, rather than creating obstacles for them, he says, and they review reps’ materials promptly. In addition, not long after he affiliated with Geneos, he asked the home office if they would consider working out a discount with Morningstar for the Advisor Workstation software application. The B/D sent out a survey to gauge other reps’ interest, then promptly proceeded to work out a deal with Morningstar to offer a discount on the software. “This one issue saves me over $2,500 per year, so I greatly appreciate it,” he says. Leyes says he hopes that Geneos will continue to invest in its technology offerings, and would especially like to see a link built that would allow the automatic downloading of data between Advisor Workstation and StatementOne, the account aggregation software provider.
Ron Miller, a rep in Grand Rapids, Michigan, made the leap to Geneos only three months ago, in part because the firm offered “a much more attractive payout” than he had received at his previous firm. He’s generally impressed with the level of service he’s received from Geneos, and he expects that it will only improve as Geneos fills out its home office staff. “They are doing a great job with the staff they have,” he says, “and I think service will improve as the staff grows larger.”
At present, Geneos Wealth Management has 23 home office staff members serving 180 reps. Thanks in part to the growth of the rep force, gross revenues are expected to jump from $5.6 million in 2003 to a projected $20 million in 2004, and fee-based revenue is expected to increase from about $800,000 to a projected $5 million in 2004. But the increases can also be credited to greater revenues generated by each rep: While the average gross dealer concessions per rep were $75,000 in 2003, they’re expected to reach $111,000 in 2004.
Russ Diachok says he believes that many reps are attracted to the quality of the broker/dealer’s management team, which boasts a great deal of experience for a fledgling B/D. “My father (George) and I were the founders of Multi Financial, which we sold to ING in 1998, and then we left in early 2002,” he says. “All of us have been with other B/Ds in the past, and our staff comes from varied backgrounds, so we have a very high-quality management team.”
As he looks toward the future, Diachok says the firm will concentrate on increasing the firm’s assets under management by helping reps make the transition to a fee-based business model. “We’re really embracing the assets-under-management philosophy,” he says. “We have several proprietary platforms that we make available to the reps, and we also have a very large menu of third-party money managers that our reps can utilize.” About 25% of the firm’s income comes from fee-based programs. – Karen Hansen Weese
Division II
Next Financial Group, Inc.
Owner-Reps Vote for Themselves
Jeff Auld works hard to serve his growing number of Representatives at Next. those reps apparently appreciate the effort
When advisor Clive Cholerton of Boca Raton, Florida, heard that his broker/dealer was filing for bankruptcy in 2001, he found himself in the “worst possible situation anyone could imagine.” Having to move quickly, Cholerton booked four separate flights to check out potential replacements. “NEXT Financial was second on the list, and after that meeting I cancelled the other two trips,” he says. “I knew what I wanted and NEXT had it.”
For four consecutive years, Houston-based NEXT Financial Group, Inc., led by President Jeff Auld, has received the Investment Advisor Broker/Dealer of the Year award in its division. In 2001 when NEXT earned its first award, it was home to about 160 representatives and it had gross revenues of just over $11 million. In 2004, Auld expects the firm’s revenues to exceed $37 million, and as of August 1, it housed 500 representatives, a third of whom are NEXT shareholders. That news may prompt both joy and concern among NEXT’s rivals for Broker/Dealer of the Year–if NEXT is over the 500-rep level by voting time in mid-2005, it will move up from Division II to Division III in the balloting.
Exuberantly humble would be the only way to describe Auld’s reaction to the firm’s latest award. “It’s gratifying to see how excited the employees get each year when we win this. Nobody seems to be taking it for granted,” he says. “The reps don’t fill out the surveys because we ask them to. They do it because they really care about this place.”
Illustrating that care is Kay Brown of Selma, California, who joined NEXT 18 months ago. In looking for a new B/D, she said she had very high standards: She wanted a conservative, smaller firm that was still flexible enough to support her needs. “They have a very strong sense of ethics and to me that is extremely important, especially after the debacles of the last three years,” she says. “This is a very lonely business. We are with our clients all the time but may not have relationships with other representatives,” Brown notes. At NEXT, however, “there is a sense of family.” The principals encourage cohesiveness within the firm and maintain a strong level of integrity, she says: “I like that.”
NEXT was praised particularly by its reps in the 2004 Broker/Dealer of the Year balloting for its payouts, product list, and compliance efforts, but Auld says there haven’t been any major changes in the last year in any of those areas. “We’ve simply maintained the philosophy of putting our representatives’ needs first,” he says.
Over the last year, Auld says NEXT has added to its support staff and increased its recruiting staff from two to six people, but” we also have recognition activities to keep [current staff] focused.”
With many broker/dealers there is a certain amount of pressure put on its representatives to sell proprietary products, explains advisor Glenn Wiggle of Williamsville, New York, but that hasn’t been his experience at NEXT. Being able to own stock in the company and have a voice in its direction is what attracted him to join NEXT five years ago, he says. In weighing whether to affiliate with NEXT or another firm, Wiggle noticed that most of the other firms “were either owned by a larger insurance firm or a brokerage house, and you have the problem of proprietary products being forced down the pipe; or they were owned by one or a group of individuals who were padding fees to generate additional revenue for the one or few actual shareholders,” he says. “With NEXT, I am an individual rep with a firm that caters to my needs and has me share in the process and the management of the company.”
At its current rate of growth, Auld hopes NEXT will have 1,000 representatives in the next several years. “We are going to take advantage of the momentum that we have, the interest in the firm, and continue to expand.” But no matter how large NEXT becomes, Auld says the decision is not ultimately up to him. “Our representatives own this firm and will decide how large NEXT will become. If they feel our size has become too large and is negatively impacting our level of personal service, then they will direct me to change that objective. But for now, we are going to continue to grow as rapidly as we can manage it.” –Megan L. Fowler
Division III
Sigma Financial Corp.
