Research: For those who don’t know NPH, how do you fit into the broker-dealer universe?

Dreffein: NPH is an independent contractor broker-dealer network. We have four broker-dealers: National Planning Corp., which is out of Santa Monica; SII Investments, which is out of Appleton, Wisc.; INVEST Financial Corp., out of Tampa; and Investment Centers of America, which is out of Bismark, N.D. We go after two primary markets in the four broker-dealers. The first is the independent contractor registered representative who’s focused primarily in the financial planning aspects of the business. We also have a significant presence in the bank channel, both in community and mid-size banks. We opened our doors as a network in 1998 when we formed NPC from scratch and also acquired SII. In 2000, we acquired INVEST and ICA.

Why run the four BDs as distinct brands?

It’s interesting; when we started the BD network, it was very apparent that there are three basic things any BD has to do to recruit and retain either representatives or banks. First, you have to provide innovative technology; second, you have to provide great service; and third, you also have to provide a competitive compensation package. You can distinguish a BD in these three areas, but the one thing that really distinguishes you and the final hurdle you have to clear is really the relationship aspect. When we look at registered representatives, their client’s relationship is with them, not with the BD. When we look at the reps, their relationship is with the BD. So we’ve kept them separate as kind of a counter-intuitive strategy. If people try to consolidate or roll up reps, what you end up doing is breaking that relationship.

Each of our firms has a very distinct culture, unique relationships and to some extent a distinct market niche, and we didn’t want to do anything to interfere with that.

Can you describe those unique cultures?

At NPC, our focus is on the independent contractor channel exclusively. We look at the seasoned producers that are really looking to partner with their BD to take the next step together. It’s a very collaborative culture at NPC. At SII, they have a very similar market niche; the difference there is you have more of the Midwestern culture — and I’m from the Midwest, so I mean that in the positive sense. ICA’s niche is very different. It focuses primarily on the community banks, which will create a brand-new program from scratch, taking a very hands-on approach to building a new segment of the market and generating new opportunities for folks who have yet to enter the securities business. And INVEST started as a third-party manager for mid-sized bank programs. They’ve done a great job with that because they understand the bank culture, and have also branched out. In fact, a lot of their growth has emerged from their unique niche with the independent contractors, recruiting those reps who would like to explore and partner with the bank side.

Are you looking to capture any other opportunities?

We’re in the markets where we want to be, which is where we see the greatest opportunity: seasoned independent contractor reps and the banks. Areas that could be potentially interesting to explore would be the CPA market and wirehouse reps.

What has the industry failed to realize about the banking channel?

It’s a difficult nut to crack, to be very frank. When we started, we attempted to recruit a number of banks to join the network and we were less than successful, kind of a “cart before the horse” thing. Banks tend to want to partner with organizations that already cater to banks. If you’re trying to break into that channel, the easiest way we found to do that was through acquiring someone who was already there and had established their presence. I think for other firms that have contemplated breaking into that market, it’s a very long gestation process to successfully pull it off.

NPH is also famous for its technology. What’s your edge there?

Sometimes it’s better to be lucky than smart! Because we set up NPH in 1998, we were very fortunate in two respects. First, in 1998, it was obvious that people were moving away from mainframes to Web-based applications. Second, since we lacked any legacy systems, we had the opportunity to go in and think about what would be the ideal scenario in creating a technology platform.

As we looked at the type of reps we were recruiting, there was one common theme. Their scarcest resource was time, so what we needed to do was find as many solutions as possible to automate their processes and free up their time to serve clients rather than fill out paperwork.

What’s ahead?

We’re neutral in terms of whether our reps are commission-based or fee-based. That said, the market has swung more heavily into the advisory arena and we’re spending substantial resources to make our current advisory platform even more robust.

We’ll also hopefully open up a value-added proposition for advisors who are currently unaffiliated with any BD. Maybe we could provide some of our service to them. The key is going back to providing the integration of technology and compliance support that these folks are looking for.

How do you see the industry evolving?

We’re starting to see more of the smaller players being acquired. Five years from now, NPH will be the largest independent broker-dealer network with the best technology, the best reps and the best reputation.