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Broker/Dealer Briefing: Independent Broker/Dealers Celebrate Earned Credibility

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The leadership of the Financial Services Institute (FSI) threw down the gauntlet in front of legislators and regulators at its OneVoice annual meeting in New Orleans January 25-27, saying it would focus its “effective political advocacy,” in the words of new FSI chair Mari Buechner, on the regulatory reform still playing out (see page 23) in Congress, fighting for continuance of 12b-1 fees (on which SEC Chairman Mary Schapiro said the Commission will renew its investigation; see page 24), and preserving B/D reps’ independent contractor status. That status, central to independent B/Ds’ business model, is seen as threatened by a bill introduced in December by the now senior Senator from Massachusetts, Democrat John Kerry, called the Taxpayer Responsibility, Accountability and Consistency Act of 2009, or S. 2882.

Now in its sixth year of existence, FSI national conference chair Tim Murphy, CEO of Investors Capital, noted that there were 514 attendees in 2010, representing a 10% increase.

Buechner argued that the group has “earned credibility for our business model” in its advocacy efforts, to the point that “today we have a seat at the table with SEC, FINRA, the states, and Congress,” and that independent financial advisors “now represent 43% of all advisors,” according to Cerulli Associates.

Buechner’s ascendance reflects the growing influence of smaller-firm broker/dealers, which Buechner said now represent 20% of all FSI membership. In an interview, outgoing Chair Eric Schwartz of Cambridge Investment Research noted that a dozen such small firms joined FSI during his tenure as chair, and that FSI effectively now represents the entire independent B/D community.

CEO Dale Brown, the single person most responsible for FSI’s efficacy and growing influence in a remarkably short time, noted in a speech in the opening session that FSI’s priorities include continued robust participation in FINRA governance; being “constructively engaged” in the regulatory and legislative process, and in educating policy makers, citing as a particular triumph “making sure” that any consumer financial protection agency, such as the CFPA still being promoted in the Senate by Connecticut’s Chris Dodd, “does not oversee independent broker/dealers and RIAs.” Congress, Brown said, “is the key to long-term change,” and that “it’s more important than ever” for FSI to use its hard-won credibility in influencing those issues of importance to its members.

Better Story-Tellers

In a session delivering the findings of a study conducted for FSI by Dan Inveen of FA Insight (disclosure: Investment Advisor partners on other research studies with Mr. Inveen and FA Insight; see “Structuring for Success,” page 54), Inveen reported that trust and loyalty has declined among advisor clients, presenting an opportunity for independent broker/dealers. Murphy, a member of the Greek chorus during the session that commented on Inveen’s findings, said that one of the unintended benefits of the 2008-2009 markets and economic crisis was the publicity that has devolved on the independent model. As an example, he recounted an anecdote about a client of an Investors Capital advisor who had congratulated that rep on having embracing the independent model–even though the advisor had been independent for eight years. The moral of that story for Murphy? “We have to tell our story better.”

Matt Lynch of Capital Analysts, another chorister in the session, agreed: “We have to do a better job of defining who we are” as independent broker/dealers,” he argued. Moreover, Lynch reported that when it came to finding new representatives, looking at the wirehouses and other independent broker/dealers as a recruiting source was “a thing of the past.” As the rep force ages and the need for succession planning grows, he urged his fellow B/D executives “to find ways to bring people directly to our channel.”

Murphy said that one of the ways to attract such people is to better “define my niche. We decided some time ago that we couldn’t be all things to all people,” saying Investors Capital had tried doing just that, “and we were lousy at it. We can’t provide advisors with everything they need.” Lynch suggested that one way to define the independent B/D niche would be to “become leaders, perhaps in embracing the fiduciary duty.”

In conclusion, Inveen suggested that to attract such direct recruits, independent B/Ds should establish ties with CFP Board-registered educational programs at colleges and universities around the country that offer the 95 undergraduate, 45 graduate, and four doctoral degrees in financial planning.

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