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What's Next for Cambridge as It Turns 40

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What You Need to Know

  • The BD's keys to success have included good timing, maintaining its culture and treating people well, its execs say.
  • The company has no intention of being acquired.
  • It has become increasingly challenging to compete against larger broker-dealers.

While celebrating the start of Fairfield, Iowa-based broker-dealer Cambridge Investment Research’s fifth decade, executives of the company, founded 40 years ago on March 10, reflected back on how treating people well  — advisors and clients alike — has allowed the firm to weather challenges including intense competition and even thrive.

“When I was 27, I started the business and so it’s hard to think that at that time I was thinking I’d do this for 40 years,” Eric Schwartz, Cambridge founder and executive chairman of the board, admitted to ThinkAdvisor during a recent interview.

“I don’t think most people at age 27 are thinking that far out in the future. So it is kind of eye-opening to think we’ve been going that long and where it’s gone in that time, especially since really the first 12 years was learning everything that I should have known when I started it,” he said.

The company’s revenue in 1992 was about $500,000, Schwartz recalled. Now, “we have large numbers of advisors that do more than that amount of business” on their own at the firm, he said, noting most of its growth started that year.

The success that Cambridge has achieved can be chalked up to at least a couple of factors, he explained: “We started in the right place at the right time. It was early in the development of the independent broker-dealer space and the fee-for-advice space … and we jumped on [that] approach, and not long after 1992 we were doing 40% of our business in fees when the industry was 1%.”

The company was “probably one of the smallest broker-dealers in the country in 1992 and now we’re one of the largest,” and its ability to achieve that is “really a tribute to getting into a positive trend and just staying with it [and] staying true to our values,” Schwartz said.

Pointing to another key to success, Amy Webber, the company’s CEO, said:  “What makes me most proud is the success we’ve had in surrounding ourselves with a like-minded, innovative leadership team that can help us as we grow” and “maintain the culture” of the organization.

The fact that they have retained control of Cambridge “continues to be important,” she said, adding: “We’re in it for the long term.”

What’s Next for Cambridge

The company has clearing agreements with National Financial and Pershing, but also has assets and institutional relationships with Charles Schwab/TD Ameritrade and Fidelity’s institutional platform, Webber noted.

“Over the next three to six months, we will be adding all of those institutional platforms onto our WealthPort platform,” she told ThinkAdvisor.

Cambridge “started a journey of a digital transformation a couple of years ago,” Webber explained. Although it was a five-year plan, “COVID helped accelerate that  [and] we’re now already implementing some things that we may not have done as quickly,” she noted, estimating the journey will now be completed in about two years.

Meanwhile, Schwartz said, “one of the things we have worked on for a number of years  — and we’ll probably be implementing in the next year or so — is creating a share class [with] super voting rights so that even if senior management doesn’t own 90% of the company, or 85% like it has historically because of me, that they still have control of the voting shares.”

The executives are looking to make sure “we can keep private control of the company,” regardless of who becomes its owner down the road, he said, adding: “We have no intention of ever being acquired” and “we don’t really want to grow by buying some huge competitor of ours.”

But “we are talking to some” smaller firms with up to $100 million in annual revenue and “we will probably acquire some, although we look at it as more a recruiting engagement.”

Cambridge now has about 3,700 financial professionals and, as of December 2020, it had a total of $137 billion in assets under advisement with those advisors, Webber noted. Of the 3,700, about 3,150 are on one of the company’s advisory platforms — mostly its corporate RIA, she said.

Over the next five years, “we believe that our revenues will approximately double,” Schwartz said, projecting growth of about 14.7% a year. If Cambridge gets to $2 billion in revenue in five years, the number of advisors will probably be about 5,000, he projected.

Biggest Surprises

Asked what the biggest surprises have been over the past 40 years, Webber said: “If you would have asked me at least 23 years ago, when I started, if I thought in a mere 20 years, we were going to be under the incredible pressure to constantly justify that we’re good and that we provide value [through financial advice] I might have said, ‘No way.’”

It’s also been “kind of shocking” that this pressure on the industry has evolved while the quality of advice and advisors has grown significantly over the years, Schwartz said.

Biggest Challenges

The biggest challenges, meanwhile, have been “regulatory pressures” and challenges related to continued consolidation in the industry, Schwartz said. Consolidation has made it tougher to compete against larger rivals who “all have huge amounts of money” and/or the ability to “raise additional capital” via private equity backers, he explained.

“We have a lot of money compared to what we used to have but it’s tough to go head-to-head with all of them when they have almost unlimited amounts of money,” he explained. For one thing, some large rivals can offer pay packages comparable to what wirehouse firms used to offer.

As a result, “virtually every advisor that joins us takes substantially less front money than they would elsewhere,” he said. “It’s almost like [big firms are] paying acquisition money for individual advisors and so this is a big challenge” for Cambridge and even more so for smaller BDs, he added.

“To me one of our great accomplishments over the last 40 years is that there’s never been an advisor that probably came to Cambridge because we offered them the best financial deal,” Schwartz said.

“When an advisor cares enough about what we’re doing to come someplace where they’re giving up substantial amounts of money, that tells me that’s the kind of advisor we want and that’s the kind of advisor clients should want because they’re not putting the dollar sign always first,” he added.

Biggest Successes, Milestones

For Webber, the ability to have attracted “900 employees for a firm based in rural Iowa is amazing,” she said.

Another major milestone was opening Cambridge’s second location in Phoenix, Arizona, in the fourth quarter of 2020. “We realized that, from a regional perspective, it was time for us to start augmenting the talent that we could find in rural Iowa,” the CEO explained.

Also, in her 23 years and a few years before she arrived, Cambridge’s ability to “achieve nine out of 10 on our satisfaction ratings from our advisors” has been another major success, she said.

Echoing what the executives discussed in a recent “Cambridge Stronger” podcast, Webber said the company sticks by one major philosophy: “Do the right thing for people and treat people well when no one’s looking. It’s really provided some heartwarming milestones from that perspective because we wouldn’t be here if it wasn’t for all of those people that are trusting us.”

The firm is the only independent BD to have been recognized by ThinkAdvisor’s sister publication, Investment Advisor magazine, 13 times as a Broker-Dealer of the Year — an honor which is based on votes cast by advisors on their firm’s levels of service and other measures.

In the category of independent BDs with over 1,000 producing advisors, Cambridge took the top award from 2007-2008, in 2010 and from 2012-2020; it achieved the honor in the next-largest group of firms in 2003 — making it the winningest firm in the award’s history.


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