In April of 2011, 60 Minutes did a segment on Eli Broad. If you’re not familiar with Broad, he built KB Home (formerly Kaufman and Broad Home Corp.) and SunAmerica (which was sold to AIG). These days, Eli and his wife Edythe are solely devoted to philanthropic efforts that advance entrepreneurship for the public good in education, science and the arts. It’s their activity in the arts that 60 Minutes reported on.
Broad has collected art for four decades. With numerous museums named after Eli and Edythe in the Los Angeles area, the couple has amassed a personal modern art collection of about 2,000 works by more than 200 artists. Valued at more than $1 billion, the collection is so expansive that it needs to be kept in a large warehouse. When once asked what he looks for when purchasing art, Eli’s response was simply, “Art that is important.”
The difficulty in this is trying to anticipate which artists will be considered historically important by art experts in the future, rather than collecting those whose work is already deemed important, such as a Jackson Pollack or Claude Monet. To be important, the art needs to bring something new to the table. It must display an exceptionally developed level of skill in a medium that has been well honed.
Analyzing the world of independent broker-dealers, we looked for firms that might meet the criteria of “important.” What we came up with are two defining characteristics:
- The firm must bring something new to the independent broker-dealer channel, such as a positive change of focus and direction.
- The firm expands the business model so that the channel becomes an increasingly viable alternative for advisors to seek out.
Here are the five firms that we feel meet the criteria of important.
Commonwealth Financial Network: Taking practice management to a higher level
No other firm has defined, developed and executed practice management as well as Commonwealth, and for that, they are important.
With humble beginnings, founder Joe Deitch (left) went through the natural struggles of a new/young business owner. Knowing that he had a lot to learn, Joe entered the Harvard Business School OPM (Owners of President’s Management) program. Commonwealth had its struggles in the mid-’80s, with firms going out of business at a rapid pace, the tax reform act of 1986 and the October stock crash of 1987 creating a very difficult environment in which to operate a financial services business. Joe has attributed the Harvard OPM program to his firm’s survival through this difficult market, as well as the 1989 birth of their Practice Management Department.
Today, Commonwealth’s Practice Management Department operates with the philosophy that excellent wealth managers may not have all the tools necessary to be excellent CEOs of their own small business. Thus, the department gives the advisor more face time with clients by helping with the CEO functions (staffing, risk management, marketing, business planning and dashboarding) all of which are critical to the success of their practice, but none of which are in and of themselves revenue generating.
Raymond James Financial Services: Attracting wirehouse reps
Prior to the emergence of Raymond James Financial Services, independent broker-dealers were considered a fringe model for reps with insurance backgrounds. Raymond James made the independent model a viable, sought-out option for wirehouse advisors.
The early and mid-’70s were a very difficult time for Raymond James in a declining market that meant declining margins with the static overhead of a retail model. In 1975, Raymond James acquired a struggling mutual fund sales and financial planning firm, Financial Service Corporation (FSC), and merged it into its existing independent broker-dealer – IM&R – along with most of its top talent.
For the years following, Raymond James grew substantially, bringing credibility to the independent broker-dealer channel that did not exist prior. By 1999, they changed the name from IM&R to Raymond James Financial Services and have grown to become the second largest independent broker-dealer. To this day, Raymond James maintains a primary focus of recruiting wirehouse advisors, averaging 85% of recruits coming from this channel. In some years, like in 2009, recruits came almost entirely from wirehouse firms. Building a platform that has the look, feel, advisory platforms and technology similar to what wirehouse reps are accustomed to, but in an independent wrapper, has given Raymond James the success that it enjoys today. Cambridge Investment Research: The hybrid model
Prior to the early ’90s, the hybrid model was rare and largely ignored, until Cambridge embraced it. The firm’s evolution as the leader of the hybrid model makes it important.
Founded in 1981, it wasn’t until the early ’90s that Eric Schwartz (left) decided to follow the hybrid model as the wave of the future. The beginnings of this new business venture did not come easily, though, as the firm lost its two biggest offices (about 75% of its revenue) because those offices decided to forgo all commissions and become fee-only.