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Industry Spotlight > Broker Dealers

Advisor Group CEO Roth Says, ‘This Business Is Not for Wimps’: AdvisorOne Exclusive Interview

By Janet Levaux

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Advisor Group President and CEO Larry Roth says most small broker-dealers “are gone or will be soon” due to the technology, compliance and other business costs.

“You cannot expect longevity if you’re a small niche player. This business is not for wimps,” Roth said in an interview on Monday.

Roth and the heads of the group’s three broker-dealers — FSC Securities, Sage Point Financial and Royal Alliance — spoke at length in an exclusive interview with AdvisorOne, which took place during the group’s 2011 women’s conference in San Antonio.

The three broker-dealers experienced an 18% rise in fees and commissions in January 2011 vs. the same year-ago period, Roth says. 

“January was better than we expected,” he explained, “and we’re hopeful for 2011.” Roth says about 70% of these results are fee-based, with the remainder coming from commissions.

FSC Securities also announced that it is in the process of adding up to 50 financial advisors from QA3 Financial, which ended its broker-dealer operations in February.

Some 300 individuals from the Advisor Group and its sponsoring partners attended the Feb. 27-March 1 event, including nearly 200 of the firm’s female advisors, at JW Marriott Hill Country resort.

In 2009, Royal Alliance’s top producer was Meg Green, said Art Tambaro, head of Royal.  “We don’t target women specifically in our recruiting,” Tambaro said. “However, we are glad to work with female advisors who want less restrictions to run their own business, such as one FA I’m bringing over from a wirehouse in the Midwest.”

Jeff Auld, head of SagePoint, says one of the broker-dealers’ advisors is helping him recruit a female advisor from a wirehouse firm. “She’s attending this conference to become better acquainted with us,” Auld said.

BD Legal Woes

A number of small broker-dealers have faced lawsuits “as product problems have come to fruition,” Tambaro says, leaving Royal Alliance, FSC and SagePoint with the chance to pick up large groups of advisors.

In addition, advisors who’ve been waiting for the markets to recover from the financial crisis are now ready to move, he explains.

“This legal trail, or litigation cycle, is probably going to play out for six to 18 months,” Roth said.

Many small advisors with $25,000-$50,000 in yearly fees and commissions have been “washed out by the crisis,” the Roth notes.

Still, “Our pipelines are as full as they’ve ever been, and that’s why we’re so happy,” Tambaro said.     

Mark Schlafly, head of FSC Securities, agrees.  “We’re financially strong, recruiting is up, and all this is improving morale,” he said.

Working more with women advisors and female clients can contribute further to this trend, Schlafly says. “We want women to know that the firm is friendly and supportive and that they’ll have a great home here.” 

The new fiduciary standard and other regulatory challenges facing advisors and broker-dealers works to the Advisor Group’s competitive advantage, Roth says, since the group has a yearly operating budget of about $150 million, with about $25 million dedicated to compliance. 

“Smaller firms without this infrastructure and that took risks can’t stay in this business,” Tambaro explained.  This situation, he says, should probably play out for the next four years or so, he says.

While this represents an attractive opportunity for growth for the Advisor Group and it broker-dealers, it also represents a formidable challenge.   “We must continue to be innovative, to reinvent ourselves and to speak to our independent-business model,” concluded the Royal Alliance president.

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