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Practice Management > Building Your Business

Chosen: 2009 Broker/Dealers of the Year

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These are interesting times. If you think you have it tough as an independent advisor, imagine for a moment that you are running an independent broker/dealer. Sure, the wirehouse boogeyman is off in the corner whimpering, and some fairly high-profile B/D networks are having their own problems holding on to reps who are fed up with uncertainty and looking to hang their shingles in a more secure location. But you’re also suffering from a steep decline in revenue prompted by the steep decline in the markets in 2008. Moreover, if you’ve heeded the siren call of fees over the past few years, you’re fee-based revenue is also down. Combine that with the double specter of having a fiduciary standard replace your suitability standard and an Obama Administration that has questioned the independent contractor status by which the independent B/D world survives, and you’re cooking up a distatesful stew. Add in an aging rep force and the resurrection of the 12b-1 fee’s demise, and things get even worse.

But despite their acknowledgement of these challenges, the leaders of the 2009 Broker/Dealers of the Year remain an upbeat bunch. Based no doubt on their entrepreneurial pedigree and experience with prior economic downturns, David Stringer, Ralph DeVito, Jerry Rydell, and Brian Murphy remain champions of their individual firms and the independent B/D model.

Their firms were the ones given the highest ratings among their peers by their own reps in the 19th annual Broker/Dealer of the Year balloting by Investment Advisor’s independent B/D rep readers. As is the case each year, the voting was close in several of the four divisions, and as a reflection of how reps view their B/Ds, the overall view is a positive one among reps, a notoriously difficult-to-please group who tread the treacherous border between total independence on the one side and wirehouse servitude on the other. The B/D chiefs know that their business is keeping the reps happy on the one hand, while on the other making sure that they don’t allow them to cross the compliance boundary. These are also men who understand that reps have more choices than ever in both the independent B/D world–which was never as monolithic as some supposed–and in the independent RIA world, where many reps already are at home.

In the pages that follow, we profile these leaders and their firms, plumb their feelings on what makes them optimistic about the future, and ask them to share what troubles their sleep.

The Overview: How has business changed?

David Stringer, Prospera Financial: We’re advisors who have built our firm for advisors, and the people in our home office have been with us for a long time. We focus on three core values: character, competence, and caring. We’re looking for honest, high-integrity people who want a long-term relationship; we want our advisors to be the last stop in their career. If they want to sell their business or bring their families into the business, they can do so without changing broker/dealers. We have a high average production for our 94 reps–over $300,000. These reps want a flexible platform, closeness to senior management, people who have been in their spot. We ask our advisors to put their clients first, and we put our clients, the advisors, first.

That’s been pretty consistent even over the past 18 months. We look at them as business owners. Having been an independent advisor, I know how important ownership, control, and freedom are.

One thing that has been different is our record recruiting. We’re having more conversations with wirehouse guys, but also very small broker/dealers [that realize that model is] not making sense anymore. Some of our advisors are looking to put junior reps in their offices to help with their succession planning and to share expenses. We have a recruiting campaign we’ve put in place to help fill those spots in their offices.

Ralph DeVito, The Investment Center: We pride ourselves on our service, but over the last 18 months, we’ve had even more emphasis on service; it’s been a hand-holding experience for us. Last September and October, there were some reps who were very, very tense. We talked to them a lot. It’s about much more than just processing a ticket; we help them grow their business, and to stay out of the way when all they want for us to do is process that ticket. But our goal is to provide service that you’re not used to from Wall Street.

I’ve been beating the drum to our office people that now you have to be more patient, you have to be more attentive. I don’t want to be the trigger for reps’ angst.

We’ve been taking on projects, tidying up areas we’ve meant to get to that we thought needed improvement, whether it’s operations or compliance, and we’re doing a lot of technology work–our internal systems are getting revamped, our disaster recovery system is being updated, we’re doing a new document management system–all to make the service model smoother.

We haven’t fired anybody. I’ve been watching my expenses but am not cutting back anywhere if it hurts service.

Jerry Rydell, Sigma Financial: I began the firm 25 years ago, and I think the next couple of years are the greatest opportunity most advisors have had in a long time, simply because people are ready to talk. Our firm is based on being a good joint venture partner–it has to work for the staff, the company, for the reps, and the clients.

We’ve always had a strong financial planning orientation, following asset allocation–so when stuff hits the fan, it’s easy to go back to the asset allocation model and review your goals.

We started a coaching program 18 months ago, before the markets got too bad, working with the Cannon Financial Institute. About a third of the firm’s associates have gone through the Cannon program. People have really gravitated toward it, and sometimes it’s teaching the old dog old tricks–reminding them of what they know, refocusing.

The last two years we’ve taken the top 10% of representatives, what we call the Leaders’ Circle, to two-day special meetings discussing what’s taking place in their practices, and brought in Matt Oeschli for his Rainmaker program; that’s been very successful.

In the fall, we stressed to our reps that you’ve got to be on the phone with your clients; don’t hide under your desk. Something we’ve developed over the last 10-15 years is our case planning department. On a staff of about 95 people we have 14 or 15 of those who just do a full financial plan on behalf of the advisor, work in conjunction with them, or serve as a second opinion–we probably do 150 individual financial plans a month.

Recruiting has been good, and we haven’t had to lay anybody off. In the first of the year, we’re thinking we should start doing some in-house staff training, because maybe then is when things will turn around.

Probably 85% of new associates come from referrals from existing associates. That’s the key to our success.

Brian Murphy, Woodbury Financial: Woodbury was formed in 2001, and through last year we were growing at 16% a year. In the first three months of this year we flattened out on revenue, but we never stopped focusing on the basics–it’s all about engaging with the reps on their practices. Their businesses are at ground zero of this crisis–and that can’t help but help us grow, and we never stop recruiting. There’s been such a seismic hit to our industry that it’s a good opportunity to sit back, look at what your core is, and ask how you differentiate yourself.

So our mantra was “collapse to the core” and to simplify what we were going to be doing, and at the same time adopt what [Margaret] Thatcher said: “When times are difficult, raise the bar.” We pulled the meat off the bones of our company in the first couple of months of this year, not as an expense exercise. We had a strategic plan that we were executing well, but things changed–certainly the premises changed–and people have a different mindset than what they had going into this. So we came up with a new strategic plan, still centered on our advisor–we believe the lifetime needs of Americans are best served by local, objective, independent representatives. That’s our guiding light, and if we focus on that, helping them be successful, we can’t help but succeed ourselves.

We broke up everything we do into three buckets: 1) broker/dealering–these are our core functions; 2) our differentiators; 3) and what adds value, but maybe there’s a cost benefit analysis that we have to refresh.

What that analysis told us was that in our core broker/dealering functions, we didn’t have as elastic and as predictable a delivery system for all of that as we needed to digest growth as well as being resilient to the downside. We now know what long-term periods of double-digit revenue mean, but also what short-term double digit declines mean.

We took it upon ourselves to look at our expense structure, not just how we can use technology–and Ralph, we’re doing many of the same things that you’re doing–but also to create a greater corridor of variable expenses so that we can have more flexing of our expense base. We have 1,700 reps, a number that’s held flat as we’ve increased our minimums. We’ve found that too many people hover around the minimums, and you create a ski slope and then you have the bell curve, so we’ve been trying to substantially increase our average GDC.

We also found that we had way too many differentiators, so we trimmed that down to four: keeping our promises, being a true partner for all seasons for our reps; to build through coaching, to do a lot less of the sales management stuff that was a hangover from years past, and much more business development and practice coaching; and helping our reps build a multi-disciplined business, because I think that consumers are going to be skeptical and cynical about big institutions, and it’s going to be their local advisor [who will retain their loyalty]. The fourth is around compliance–it’s gotten harder and put us into a potentially difficult position with our reps, as more and more the regulators say, “This is the principle, now you figure out how to comply with it!” We’re taking a serve-and-protect approach: if we protect the reps, it can’t help but protect us, as opposed to the past where we’ve fallen short of ensuring that reps understand that [our compliance efforts are] trying to protect them, rather than that we’re trying to protect us.

Regulation: What are the big issues?

Murphy: The scariest thing is a well-intentioned desire to do something big–whether it’s Congress or the regulators–that the average Joe can look at it and say “Wow, that’s different!” But when it’s applied it’s something almost impossible. The overall reactionary approach is not good for regulation. We need time to analyze, rationalize, institutionalize, and you can’t do those when you’re being whipsawed politically.

The biggest issue for Woodbury’s model is the independent contractor status [potential reclassification by the IRS]. That’s the trump card. We’ll find our way through the fiduciary issue, though that will take a lot of give and take. But if they all of a sudden reclassify our independent contractors so that they’re now employees, it hurts our entire system.

DeVito: Then we’re out of business, and we turn into a wirehouse.

Murphy: Not only that, it’s a domino effect that goes right through to the middle-class consumer, that Main Street person they all talk about, who will no longer have somebody to talk to, unless it’s a career agent or some proprietary person. After that comes fiduciary versus suitability, then 12b-1s, and some other issues

Stringer: It’s hard to focus on those pebble issues when you have a boulder like the independent contractor status.

DeVito: What scares me is everything you mentioned. We’ll get through the fiduciary issue, and hopefully through the independent contractor issue. What we won’t get through is the damage that was done by the banks, where the trust factor is gone and the clients are demolished. We should focus on the bigger picture, which is how to monitor the products that get out, and how FINRA and the SEC approve them. We already do this–none of us had any subprime exposure–but we’re getting slapped around again for something someone else did. That’s not going to help the client or make them feel good that we can stave off another Bernie Madoff or Allen Stanford.

Rydell: There were already enough rules to stop Bernie Madoff, but they weren’t applied. The accountants didn’t do it, the SEC didn’t do it, FINRA didn’t do it. The only good thing about this mess is that they don’t blame the local person.

Stringer: I think Ralph said it best: We’re not product makers, but we feel the consequences of those product makers. I have a hard time seeing how they can apply some of what they’re talking about to our industry, and say these guys aren’t independent contractors. But it is a battle that we’ll have to fight.

The part that scares me is reactionary regulatory reform, where this need for speed, with a limited amount of time in which to comment. There are some diverse business models out there, and to apply the same regulations to them all without having vetted them well…

FINRA has done a pretty decent job, and to me they’re the natural ones to regulate advisory practices. They have feet on the ground. I like [Mary] Schapiro being at the head of the table, because we’ve sat down with her and she’s heard independent firms talk about their issues.

Murphy: FSI has established very palpable credibility in a very short time. But right now, there are regulatory musical chairs going on. If we were in a linear environment I think we could continue to be a constructive voice for some of the evolutionary issues. But with these regulatory musical chairs, and Congress’s involvement, the industry is responding with factionalization that is not serving us well.

This is a pretty seminal time for the entire industry. We’ve got some internal disagreements that are not to our benefit to air right now. We have to go after the context issues–like consumers needing advisors–we have to do things that fuel our industry while at the same time walking within the guardrails of regulation.

Our stewardship could be better. I think the fiduciary issue is a perfect example. It’s being looked at as some sort of pill that will cure all the ills, and I’m not sure the disease is fiduciary versus suitability; I think it’s a symptom. In practice rather than principle is where it matters.

Rydell: In arbitration you’re really held as a fiduciary no matter what.

DeVito: We get held to a fiduciary standard all the time.

Murphy: Suitability is a very high standard. In practice, suitability is a higher standard–you’ve always got at least a second set of eyes, often three. You’re constantly getting examined.

Stringer: We tell our advisors, and look for advisors, who are putting their clients’ interests first anyway, so for the most part that’s already taking place. But a suitability standard, you have 30 options you get to choose from.

Murphy: So how are you going to answer this question, David: “How was this variable annuity the best product for the client?”

Stringer: I agree. The insurance industry is going to have to come up with better answers on that. Look at the commission structure! It’s a point-in-time structure: you give away the advice for free and you get the commission in turn, but it’s a point in time. “Fiduciary” carries an ongoing duty-of-care requirement.

Representatives: How can they succeed?

Rydell: They have so many hats to throw on–marketing and servicing and doing their own due diligence–so that’s why we try to joint venture with them. And the affluent overwhelmingly want you to be in direct touch with them. That’s what separates the successful from the non-successful–how do I free myself up to be in front of people? When everybody is happy, it’s hard to make changes, but when they’re disturbed, that’s when change takes place. The clients are demanding more from reps, and the reps are demanding more from their B/Ds.

Stringer: Over the last 18 months, it’s become less about adding clients than about retaining them. It’s contact, contact, contact when it comes to clients. By the same token, our reps have gotten a lot of contact from the home office over this time.

At times like these, as a rep you feel like you’re on an island. But money is in motion.

Rydell: For many reps, the next two years will define their careers.

Murphy: We’ve challenged our reps: you can’t go into the fallout shelter, you have to be the air raid warden, the one still out there, the one with the light.

The first step was to challenge them, the second was to arm them with a different perspective and information, but there are a limited number of strategies you can use in this environment. We’ve got 30 employees around the country who go into reps’ offices, spending time on psychology and training and matchmaking sessions with experts–making sure they got on the Webinar with the economist–to give them a fresh outlook and not hunker down.

DeVito: We spent a lot of time coaching reps so they could coach clients, to look not at what they had, but what they have today.

Murphy: There are more reps in motion than ever before.

DeVito: There is more change.

Murphy: Some companies are throwing tons of money out there at reps; we’re not playing that game.

Stringer: The cost of transition has gone way up.

Murphy: We have not gassed our transition money at all; it was never high anyway. We looked at acquisitions, not one- or two-person shops where it makes sense, but big acquisitions are disenfranchising reps big time. They’re being left in limbo; you think of some of the bigger ones out there…

Rydell: Promises are made and not kept.

Murphy: It’s an inherent lie in waiting even if it’s not intended. If I bought another broker/dealer even half the size of Woodbury, and said anything to the reps to keep them on board–”We’re not going to change the clearing firm. We’re going to keep the people on board. We’re going to keep compliance the same,” ultimately you can’t do that, you can’t effectively run a company and not get the efficiencies. So we rejected that several years ago. Reps can unilaterally fire us whenever we don’t measure up.

Stringer: In the population of registered reps, the biggest producers are aging baby boomers. There’s competition for top talent in a shrinking pool, so I think the cost of trying to attract better producers–you better have a compelling story to tell them to join your firm. On the front end, we’re very picky about who we let in the door; if you’re under $200,000, you’re not for us. We’re putting a lot of energy into creating a great client experience, and be profitable. We want to grow to 200 advisors, but we’ll do it one or two at a time.

Rydell: There’s a certain sex appeal in wanting to grow, but size alone doesn’t do anything. If we added 200 reps it would destroy our business model. We’ll do it one at a time, send four or five people out from the home office, and within four or five days the transition has happened. These days you can’t spend more time than that anyway.

Clients: how have their needs changed?

DeVito: Clients have become more cautious in the wake of Madoff and Stanford, and that’s good. “Where is my money? I want to know before I put my $20 million with one guy.” But it’s hard to find a thief. If somebody’s intent on stealing, every compliance rule in the world won’t help.

Murphy: While people say they’re going to change advisors, the customers that I’m exposed to really like their advisor, but have a lot of questions–how sustainable is that practice? If their advisor looks like me, and is my age, my first question as a client would be, “Who am I going to be dealing with 20 years from now? Who is my wife going to be dealing with? Who are my kids going to be dealing with?” Continuity will be a very big thing with clients.

The Future: What are the top issues?

Murphy: I’m very bullish, but not all 5,000 broker/dealers are going to make it. I can’t imagine being a five-person B/D or a 20-person shop considering the litigation risk without critical mass. There will be consolidation, but not along one model–there will be several emerging models.

DeVito: We’re in a phase, well, it won’t be like Walmart where all the local hardware stores are going out of business. It won’t reverse course, and I think there will be a place for everyone–the wirehouse, the big independent. But the very small, I can’t imagine going back to how we started in the 1980s–there are so many regulatory hurdles.

Maybe I’m na?ve, but you need some critical mass. Even with the struggles we’ve had, it’s still a good business to be in. Like Jerry said, we’re not for sale, because it’s fun.

Rydell: The capital requirements are so much higher now, and the services you need to supply to reps are so much greater.

Stringer: As a small firm, we take a three-pronged approach: build, leverage, or partner. We try hard to leverage our clearing firm, we partner with product providers, and we need to be very strategic. We rely on our partners.

Rydell: It’s the relationships that are key.

Stringer: And different advisors will be looking for different things.

DeVito: Technology has made all the difference in the independent business. Maybe it is just as easy to start one now as in the ’80s. We have responsibility for a lot of people, a lot of families.

Murphy: As for challenges, you have consumers that have a growing need for self security, not Social Security; ever-increasing complexity, greater need for personal responsibility, and the choices are multiplying, and they’ll need someone to help them navigate. And now they’re further away than they used to be [with the recent steep market decline].

In our profession, we have fewer people than we did 20 years ago, or even one year ago. Fifty percent of Woodbury’s reps are over age 50, and very few people are coming in. So how are we going to meet this increasing need with decreasing capability, while reps figure out their business continuity plans? That’s the challenge, that’s also tension; that’s also the opportunity for companies like ours. To help reps meet that challenge.

Who Representatives Voted For

What Representatives Wish For

Where Representatives Would Go

How Representatives Voted


B/D of the Year Through the Years

Group Editor in Chief Jamie Green can be reached at [email protected].

Broker/Dealer of the Year, Division I


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