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It’s Coming Back Around Again

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As long-time readers realize, it isn’t the first go-around for many of the 2011 Broker-Dealer of the Year winners. In fact, it’s the fourth win for The Investment Center, the third win for Woodbury Financial (under both Pat McEvoy and predecessor Brian Murphy) and the third win for Investors Capital Corp. It’s only the first win for Founders Financial, but hey, give ‘em a break. They’ve only been in business five years, and they’re fully confident they’ll see us again.

With the number of “rallying moments” recently felt—the passage of Dodd-Frank, the debt ceiling fight, the (seemingly always) ongoing fiduciary issue—we thought it wise to take a look back at what’s been said.

The fiduciary issue is still in play, and there’s little doubt we’ll be discussing it again next year (and probably the year after that). Succession planning, mentioned by Woodbury’s then-president Brian Murphy in 2009, is still on everyone’s mind, but too many advisors and broker-dealers are at a loss about what to do. That, of course, leads to the question of where the next generation of advisors will come from. When asked at this year’s roundtable discussion, silence and blank stares were the response. And the technology horse race dates back at least to 2001, if ICC president Tim Murphy’s comments then are any indication.

Like childhood pictures on display, this look back makes some of the previous years’ comments look hopelessly innocent; but more often, they were startlingly prescient.

What’s excites you about technology?
Tim Murphy (2001):
A recent innovation at our firm is our new Ultra Advantage account, similar in design to Merrill Lynch’s Unlimited Advantage account. Clients have a brokerage account and everything is covered by one fee. Trading and reps’ fees are included. Reps are looking for that because it allows them to enter the fee-based business.

Ralph DeVito (2009): 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.

Where have they been and where are they going?
Brian Murphy (2006):
We’ve been growing at a compound annual growth rate of over 20% since we became Woodbury in 2001, although the seeds of Woodbury go back to 1910 and we’ve been a broker-dealer since 1949. We project growth north of a 35% increase in revenue this year, fueled by helping reps grow their practices and being active and successful in recruiting.

Tim Murphy (2001): Investors Capital tracks the market probably more closely than other companies might since it is directly related to the market. When the market comes back, so will we.

Where are you recruiting reps?
Brian Murphy (2006):
In 2001 to 2002, when we didn’t have as strong a sense of self, we went to the singles bar of recruiting. Since then, however, we’ve changed the name of the effort from recruiting to selection. Finding the right reps involves a unity of purpose plus platform matching and cultural matching—that both of us are going to be pleased with one another. However, this is a growth business, so the primary duties of the company have to be centered around growth.

What makes each broker-dealer unique?
Ralph DeVito (2008):
We’ve been growing like crazy. Our [production] dollars are growing, but we’ve stayed stagnant on number of reps for a few years now on purpose—I like to know who I’m dealing with on a daily basis, and the staff likes that, too. I feel like we can provide better service when we have people who fit our niche. We turn away many more prospects than we keep. They have to fit, because if they don’t, it won’t work out well for either one of us.

Tim Murphy (2001): Everyone says it’s like family here. Everybody cares about not only what they’re doing, but who they’re doing it for.

What are the big issues in regulation?
Ralph DeVito (2009):
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.

Brian Murphy (2009): 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.

How have client needs changed?
Brian Murphy (2009):
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.

Ralph DeVito (2009): 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.”