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Industry Spotlight > Broker Dealers

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The independent broker/dealer world is as diverse as its thousands of independent contractor representatives. From large to small, from new to well-established, from homes for reps who embrace only plain vanilla mutual funds to those who are facile with alternative investments, you can find it all in the indie B/D world. Nowhere is that diversity more apparent than in the 2006 Investment Advisor Broker/Dealers of the Year, picked by 4,813 IA readers in balloting conducted earlier this summer online at As in the 15 prior years in which IA readers rated their own broker/dealers, 2006′s honorees are divided into four divisions based on their size, as measured by their number of producing reps as of April 2006, but this year’s winners–all but one of which are first-time recipients of the honor–also vary widely in terms of their ownership structures, years in the business, and business models. What’s more striking than their differences, as a virtual roundtable discussion with this year’s winners showed, is the defining quality they share: a commitment to servicing their reps, keeping one eye firmly on the local market in which their reps operate and another on helping those reps succeed within those markets. As Brian Murphy, president and CEO of Division IV Broker/Dealer of the Year Woodbury Financial aptly put it in a conversation with his winning colleagues in early August, “We only succeed when our reps succeed, and we’ve all set up our businesses that way.”

Moreover, at a time when revenues may be growing for many B/Ds but their margins face severe pressure for a number of reasons, the leaders of these four broker/dealers are bullish on the future for the independent B/D model, and for their own companies. Ralph DeVito, president of Division II winner The Investment Center, believes that the independent B/D model “will continue to grow. As the wirehouses change and the bigger institutional models evolve, it will create more and more demand for the independent B/Ds that do the right thing, and provide the right services for reps.”

The 2006 Broker/Dealers of the Year will also serve on a newly constituted Broker/Dealer Advisory Board for the next 12 months that will help guide coverage of the industry in the pages of Investment Advisor and online. In the pages to follow are profiles of the winning firms, with insights into why their voting representatives gave them the highest marks among their peers–in 15 separate categories, including an overall rating (see the “Rules and Results” sidebar on the following page). While the winners understandably expressed satisfaction with the results of the voting, the interdependent nature of the B/D–representative relationship also means that even the winners have to prove themselves to their reps constantly. As Gordon D’Angelo, chairman, president, and CEO of the holding company of NEXT Financial, winner in Division III, noted in discussing this year’s results, what makes the competition for Broker/Dealer of the Year “fun and challenging” is that “you don’t know what the reps are going to say” in the voting.

To kickstart our reporting, four Investment Advisor editors held a conference call with the leaders of the winning broker/dealers on August 8 to hear those leaders’ thoughts on what constitutes the independent B/D charism, what they believe are the greatest challenges and opportunities for B/Ds and reps, and how they see the future unfolding for the industry. Our findings are on the pages that follow, and in a podcast of the call available at

what they worry about

In a questionnaire the four executives filled out prior to the call and in the ensuing discussion, we asked them to tell us their priorities in the near and far term, and the challenges they saw for both broker/dealer management and representatives.

Compliance tops the list for several. DeVito of The Investment Center laments that “we’re constantly in a state of flux with what we’re seeing from the regulators,” but that “we’ve been very fortunate in not having any real issues from a compliance standpoint.” Scott Yamamura, group president of Division I winner Contemporary Financial Solutions, says he relies on parent company Mutual Service Corp.’s “compliance area as far as doing all our audits and keeping track of any new regs,” but worries that reps are “scared to death” of running afoul of those regs. The good news, he says, is that those worries prompt the reps to call CFS, and “that they communicate with us before they do something.” But since Yamamura’s experienced rep force “have been in the business, they understand compliance, they know how important it is.”

Another hot-button issue, if a perennial one, for the winning B/Ds is rep recruitment. NEXT’s D’Angelo believes that some broker/dealers will occasionally take their reps for granted, and when that happens, the reps will call another firm looking for “a better place to conduct their business.” He says that there wasn’t one single reason motivating the nearly 700 reps NEXT has recruited over the past few years to move, though usually it was because “something flustered them” at their old B/D.

Woodbury’s Murphy jokingly says that in 2001-2002, “when we didn’t have as strong a sense of self” at Woodbury, “we went to the ‘singles bar’ of recruiting.” Since then, however, the firm has even changed the name of the effort from recruiting to “selection.” Finding the right reps involves “a unity of purpose plus platform matching and cultural matching–that both of us are going to be pleased with one another.” However, Murphy points out that “this is a growth business, so the primary duties of the company have to be centered around growth.” Bringing the conversation back to compliance, he says “risk management, or compliance, is the ticket to the dance, you have to do that effectively.” However, Murphy says he’d prefer that reps make a “balanced decision about where they want to be and not a kneejerk reaction because a new compliance bulletin was put out by someone else. You can’t run from compliance if you’re a representative.”

Finding Success

These broker/dealers are all successful, but in different ways, and despite their differing ownership models. NEXT Financial is owned by its reps and has grown substantially, but D’Angelo believes firmly that the best way the firm “can help the rep is touching them in their hometowns,” typified in programs like a “hometown marketing” initiative and its traveling “best practices” tours. DeVito is the sole owner of The Investment Center, but says the firm focuses “everything on our support” of its 300-odd reps “and keeping compliance as user friendly as possible in this day and age.” Murphy’s thoughts return to the local angle. His 1,900 reps are “Main Street-type reps: very entrenched in their community and civic involvement, and they have their own shingle.” While owned by The Hartford, Woodbury is “a totally separate entity,” notes Murphy. “I like to say there can be no commingling of our DNA, because our reps–while affiliated with us–are totally independent.”

Yamamura calls Contemporary Financial Solutions “a niche broker/dealer” created by parent firm Mutual Service Corp. to meet an underserved population: “the lower producer, representatives that are not selling securities on a full-time basis, reps that were looking to retire or slow down.”

CFS’s very existence also addresses an issue on the minds of our winners: the graying of the advisor workforce. As Murphy said in response to a question about the industry’s readiness to serve baby boomer retirees, “If you’re dealing with unknown longevity for clients . . . you need a practice that won’t abandon the client at the time of most need, when trust will be really important. So having a practice that will span the lifetime–and go beyond the lifetime of the rep that’s there today–that’s going to be really crucial,” in the future.

About the Future

Speaking of which, D’Angelo hearkens back to his past success building the Jackson Hewitt tax preparation franchise for a lesson about the future of the independent B/D model. “A relationship of a client and his financial planner takes place at the street level. Once the relationship is established, and the associated services and the trust are built up, it’s impenetrable. The conglomerate or wirehouse can’t eradicate the independence because that relationship is simply too strong.” There was a time, D’Angelo recalls, when the “bigger companies that do branding and advertising and put their names on stadiums used to succeed because people didn’t know who else to turn to,” but that independent advisors, once they learn how to “brand themselves in the community” and build and run their practices efficiently, will “reign forever.”

Murphy states baldly that he’s “extremely invigorated about the future and bullish about the independent model,” and Yamamura notes that while the industry’s currently “under a microscope,” he believes successful firms will continue to grow, though he doesn’t expect to see a “huge increase in the number of reps,” but rather a “strengthening of the relationship” between reps and their B/Ds.

When asked whether he expects more consolidation among independent B/Ds, DeVito said that while much of that has happened already, he “suspects” more is likely, though he believes there “will always be a need for a truly independent broker/dealer community.” For more on this year’s winners and their leaders’ thoughts, read on.–James J. Green


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