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Industry Spotlight > Broker Dealers

B/Ds in the Year 2010

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In dusting off our crystal ball, we thought of taking a prophetic approach to what lies ahead for our industry, attempting to answer such vexing questions as:

  • Will equity indexed annuities be declared securities?
  • Will advisors have any say as to their guilt or innocence when clients pursue arbitration?
  • Will Merrill Lynch buy LPL, thereby confirming something advisors already believe, namely, that LPL is the Merrill Lynch of the independent channel?

Instead, we decided to focus on a few key trends that have cropped up over the past couple of years that we think will not only continue, but are likely to accelerate through 2010.


There has been a growing sameness in the technology broker/dealer firms are offering. For example, most provide standard technology platforms such as LaserFiche, WebOps, LaserApp, and consolidated client statements. A select few offer electronic signature, but this too will become commonplace over the next couple of years. It will soon be increasingly difficult for a broker/dealer to stand out based on technology alone. Those who do will be backing themselves into a corner, until they manage to come up with a different differentiator.

One very clear trend in technology has been the drop in costs. Increased competition in such areas as consolidated client statements will see costs fall even further. With the advent of outsourcing, smaller firms are now able to offer many of the same technological bells and whistles as their larger competitors.


Broker/dealers have caught the outsourcing wave as a way of lowering overhead while improving quality. When we use the term outsourcing, we’re not talking about telemarketers in India but, rather, finding homegrown sources for use on an as-needed basis, as opposed to hiring full-time staff. We’ve seen this trend first in technology, but now in outsourcing services and functions such as conference planning and implementation, compliance, commissions, and product due-diligence, all of which has resulted in enormous cost savings for B/Ds. In the past, the staff-to-rep ratio was a bragging point for many firms, but with the advent of outsourcing and improved technology, that statistic has been turned on its head. Now, high staff-to-rep ratios signify a broker/dealer lacking sufficient operational technology. The name of the game going forward is to run leanly and efficiently, with an aim at greater profitability and offering advisors more benefits and higher payouts, or both.


Some outstanding new developments have occurred in marketing by broker/dealers. While providing seminar platforms, Web site development, and print and online brochures are commonplace, firms are now helping advisors with target market penetration, typically with CPAs, attorneys, and health care professionals. Not only are firms helping reps network into these attractive market niches, some are providing advisors with qualified leads, as well as sending experienced marketing professionals into the field to make the initial contacts and solidify these potentially lucrative relationships.

For broker/dealers who’ve been beating the technology drum, taking things to the next level by helping advisors grow into specific market niches was an obvious next step in setting themselves apart in a crowded playing field. This is among the strongest trends for the near future. The investments B/Ds are making in this area can be expected to pay off handsomely in the form of dramatically increased sales for the advisor, which results in proportional profits for the broker/dealer.

Practice Management

One firm has dominated practice management for years, but several others have become active in this area of late, and it only makes sense that others will follow suit. The premise behind practice management is simple: By helping advisors run their offices more efficiently, broker/dealers free more of their advisors’ time to spend in front of prospects and clients, thus increasing their production. Broker/dealers are helping their representatives understand and apply technology in their offices, helping in hiring and training staff, business planning and implementation, and assisting with seminar and event planning. The goal of practice management is freeing up advisors’ time so they can either raise production by as much as 30%-40% or allow reps to decrease their golf handicaps down to five!

Succession Planning

About four years ago, a couple of firms jumped on the succession planning bandwagon to only slight interest. Even recently, B/D executives wondered what the succession planning fuss is all about, saying they haven’t seen any groundswell of interest from advisors. However, as broker/dealer advisors age, the notion of a succession planning “boom” will become a matter not of if, but of when.

When speakers at broker/dealer conferences address this subject, all the reps–many in their 50s–attend and listen with incredible interest. B/Ds are increasingly partnering up with succession firms like FP Transitions in anticipation of the inevitable breakout. A few firms have offered to finance the purchase of a practice, with the main bone of contention being valuation. While some quote prices of one-to-two times production, others insist that is woefully short of the mark. In fact, projections of three-to-five times production (or more) is seen as being more like it. As has been the trend, books of business that boast recurring revenue will fetch higher multiples than transactional business.

Alternative Investments

If you’ve attended B/D conferences over the past couple of years, you’ve gotten an earful about oil and gas limited partnerships, REITs, 1031 programs, or some other forms of alternative investments. There seem to be two camps among broker/dealers in this area: Those who see value in alternatives, and have extensive selections; and those who see only risk, and avoid them as much as they can.

When broker/dealers focus on value, and use alternative investments with appropriate investors, we’ve seen broad expansion not only in the range of products but the number of choices within each class of product. Wealthier clients are, to a large extent, bored over packaged products such as mutual funds and variable annuities; so advisors may have to go outside the box just to get their foot in the door. Several firms are now offering not only hedge funds, but bridge financings, private placements, venture capital late stage bridge loans, and extensive syndicate offerings to entice a wealthy clientele. We anticipate this alternatives divide among B/Ds will increase as firms choosing to be more active in this area continue expanding the depth and breadth of their offerings.

Investment Advisory Fees

The trend of charging clients advisory fees is down slightly over the past couple of years, but with increased competition it will likely continue. Reps have been countering this trend by raising asset volume, with greater focus on asset gathering.

Administrative fees on wrap platforms have also seen a downturn. Many firms using NFS (National Financial Services) for clearing charge only five basis points for rep-directed advisory platforms, while many firms with Pershing are still at 20 bps, tiered down for larger assets. We’ve seen a few broker/dealers with Pershing lowering administrative fees to the 10-basis point range, or even less.

Many reps focused on the advisory business are hip to the fact that they can give themselves a substantial net raise by lowering administrative charges for billing, statements, and recordkeeping on their rep-directed fee accounts. Going forward, expect asset gathering to become the focus for greater volume to counter lower fees, and continued downward pressure on administrative costs to become the norm.

Ticket Charges

A few years ago it was common to see ticket charges for stocks at $25, bonds at $40, and mutual funds at $20. Thanks to online trading, other efficiencies in technology, as well as aggressive contract negotiations by B/Ds, these charges have dropped and will continue to do so. Current broker/dealer ticket charges are averaging $20 for stock trades, $15 for mutual funds, and $30 on bonds. Some firms have been able to negotiate with clearing firms to take away mutual fund charges for systematic withdrawal and deposits, and dollar cost averaging, which is one of the primary reasons reps hold mutual funds direct at the fund company. As broker/dealers renegotiate their contracts with the clearing firms, their costs are coming down, but some choose not to pass the savings on to their reps.

Some Things Won’t Change!

Through all these changes, however, the one thing that will hold fast is the basic nature of broker/dealers. Small firms will continue to be flexible and excel at relationships with advisors, while large firms will focus on depth and breadth of services offered. The needs of consumers for financial products and services will also remain constant, as will their need for someone to step up and be a problem-solver with neither bias nor any agenda other than doing what’s best for the client.

Jonathan Henschen, CFS, is president of Henschen & Associates in Marine on St. Croix, Minnesota, and specializes in matching advisors with suitable independent broker/dealers. He can be contacted by e-mail at [email protected], by phone at 888-820-8107, or through


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