When we last conducted a personal interview with Larry Roth two years ago at the FSI conference in San Diego, he had just joined the AIG broker/dealer network as the new president and CEO of Royal Alliance, and he was rightly hesitant in expressing his judgments on prospects for the AIG B/D stable and on the industry in general. Two years later and now CEO of the AIG Advisor Group, Roth was disarmingly candid in a telephone interview in early September as he spoke of how in a time of market complexity the best advisors–and clients–are more comfortable casting their fortunes with a big, well-run firm like, well, like AIG.
There’s been some consolidation in the independent broker/dealer space–most recently Securities America buying Brecek & Young, Ameriprise buying H&R Block’s advisor unit [and soon after the interview, Securian Financial forging a deal to buy Capital Financial Group/H. Beck]. Does a broker/dealer have to be big these days to thrive?
There are advantages to being big, but to your broader point on industry consolidation, I think it’s a great time to be in the independent architecture space, the best time ever, in fact. I do believe that financial advisors who are already independent, or are with a regional or wirehouse firm, the smarter business people out there are seeing more and more success than they’ve ever had. We see this directly with our biggest financial advisor relationships. Our biggest and best clients, even this year, are seeing increased revenue and profitability. As the markets have become more complex, those clients who have built up significant amounts even in a defined contribution plan realize they can’t do it alone and are seeking out financial advice. Long story short: Smart independent financial advisors and smart advisors with the big firms–when they do decide to go out on their own–they’re only going to look at the biggest and best firms. That plays to our benefit, and whether you’re talking about AIG or one of the handful of other big firms, we’re going to be the net winners in the space.
You said the “smarter businesspeople” are having more success than ever. I assume you used that term advisedly. Do you mean the bigger firms that run their practices more efficiently so that even in tougher times market-wise they can still grow revenue and profits?
That’s exactly what I’m trying to say. Independent financial advisors who have a defined market niche within a community are doing better than ever, in general, in 2008. Not in every case, but in general. So if you have a good service model and you’re operating within a community, this kind of market allows you to attract more and more clients than ever. It also allows you to hang onto your best clients, because if you provide good service, even if their accounts are down, they’re going to be more interested in what you have to say. Many of our advisors are doing more meetings with clients: They’re showing up for their quarterly meetings; they’re dialing into conference calls. Those are the people you want as an advisor–people that are engaged and focused on what they have to do to continue to grow their portfolio.
It is a little scary right now because of the markets, but I think the smartest advisors and the smartest clients will continue to align themselves with the biggest and best firms out there, and we’re one of them. So we’ll be a net beneficiary of all this.
I think clients are better served now than at any other time. I’ve been in the business for 25 years, and so we are definitely encouraging them to communicate. On the broader industry issue, I think some of the smaller broker/dealers are going to say, “This is a little too exciting. Maybe we should find somebody to partner with.”
You say that folks need advice more than ever, and that perhaps things aren’t as bad as when the tech bubble crashed, but their portfolios will be down.