Investment Advisor: What’s your thinking on industry trends, and which one most concerns you? 

Lon Dolber, CEO, president and CIO of American Portfolios Financial Services: My biggest trend concern is private equity. I don’t get it. I don’t see the value of consolidation and private equity.

It does not speak to stakeholder value, it speaks only to shareholder value. I don’t see how it produces a better result for the investing public.

And the biggest problem with it is that it’s a bad message [to our advisors] because it says you have to be bigger to make it. … I don’t get this idea of consolidating and flipping, and consolidating and flipping. Certainly I don’t get the value it provides advisors. [PE-owned BDs] get paid more by getting flipped.

What am I enthusiastic about? Private companies can move the way they want to move forward — serving the advisor — but not just for profitability. We know we have to be profitable, but how profitable do you have to be?

If your goal is to serve the investing public through serving the advisor, there’s a balance — but there’s no balance with private equity. There’s only one thing they have to do — buy and sell. [And] there [always] has to be another transaction.

I don’t have to sell the company — and I’m not going to. To me, [PE companies] are all about creating profits for small group of people.

John Burmeister, Lion Street Financial president and CEO: I completely agree with you. When we’re recruiting advisors, that’s one of the things that we talk about. You want to be part of an organization where you have ownership within that organization.

And Ryan, based on what you said, a byproduct of this builds right into what Lon was saying: a byproduct of the regulation is consolidation. It is forcing that consolidation, which then gets gobbled up by some of the private equity. That’s definitely a trend that is very concerning within our industry.

On the positive side, we’ve hit on a lot of the silver lining. It’s got e-signature, that’s being ramped up. We’ve got diversity that is being explosive. We have challenged the industry to be so nimble to where we can work remotely.

And we’re going to save on travel expenses for who knows how long, because we’re always going to ask ourselves, do we have to go face-to-face for all instances?

Many times I think the industry has evolved because of all these negative things that have happened and it will continue to do so. And we just have to keep pushing it in the right direction.

Dolber: Amy, I love your statement. We’re not for sale. I saw that advertised it. I have it hanging in my office actually, because I went: Me too.

Amy Webber, CEO, Cambridge Investment Research: We talk about this every year I’ve been here. All four of us have been privately controlled, independently owned. Regulation and consolidation is concerning for the industry.

That said, it does create — to Lon’s point — a significant opportunity for those of us who can make the decisions we need to make when we need to make them [because we’re] not worrying about [PE issues and we can focus on] what’s in the best interest of the advisors and ultimately the investors.

It can be —for the industry — a challenge, but there are many firms committed to independence, flexibility, innovation. We’re nimble. That’s exciting and that’s why I’m confident that’s going to win the day for all of us through the digital economy, through the digital life, into the future.

Many [PE-owned] firms, while they might have the deep pockets, it’s short term, they’re not thinking too far out — three, four, five years. I have read some of them say they’re not all equal but I still think ours is a good lengthy timeline and so it’s good for us and it’s good for our advisors.

IA: One argument we hear is if you have private equity ownership, then a broker dealer can offer advisors more loans to expand, more resources for succession planning.

Webber: I would suggest if you did a deep dive analysis into that and looked at those firms versus our firms, we’re doing more than they are in that category because we can choose where to invest our money instead of making sure that we’re only focused on shareholder value.

I hear that argument too and I have to combat it every time there’s a prospect. If you peel the onion back, those [PE-backed] firms have less flexibility. They drive advisors to do what they think the advisors should do, and they don’t listen the way that an independent firm would about where to best invest our capital that we do have.

Burmeister: That’s really important because the independent firms [follow] their own direction. For example, we just launched into the institutional space during a pandemic; we created a whole new line. We acquired another company.

If we had private equity, they would be telling us what to invest in and where to grow and where to expand. And during a pandemic, when the market takes a hit, who to fire, when to fire. Being ownership-based, we have more control in what we’re doing.

Dolber: Continuity is a very big thing with advisors. The money is one thing, but continuity [is key]. When [advisors] join us they want to know at least for some reasonable period of time, they’re going to get what they bought [into because] you sold them on something and they’re taking a chance

I can tell you that we had a large group come on board with us, and right before they started their transition, they were offered three times more upfront money by a firm that’s owned by private equity.

They asked the most important question to that firm: Can you guarantee me in the short term, you’re not going to sell? And they said, no, we can’t guarantee that, so they came with us.

So money is not the only issue; it’s relationships, sustainability, continuity — they want continuity of management. You can’t know that for sure when you’re owned by consolidator or a private equity firm, but you can know that when you’re with a private firm.

Diachok: I completely agree with everything you just said, Lon. But [there is that] argument out there: What’s the availability of capital for advisors for transactions and M&As at their level?

Look at the availability of capital in lending and what has evolved in our industry over the last five to 10 years. I haven’t had a single advisor that was looking to do a transaction/purchase or an internal transaction that has not be able to find really good capital and lending terms in the industry now.

That argument is kind of gone. Maybe back in the day when banks weren’t comfortable lending in our space, you maybe needed a bigger balance sheet, but that’s not valid anymore.

For a rundown of what the leaders of the 2020 Broker-Dealers of the Year think about the industry today and other topics, as well as a summary of the Runners Up, please click on these story links: