Best of Both Worlds

During his 20-year career in the brokerage business, Stuart Silverman says he saw a significant void in the industry. He felt there was such a formidable gap between the captive and independent worlds that it was preventing reps who wanted to migrate to the independent side from making that switch.

During his 20-year career in the brokerage business, Stuart Silverman says he saw a significant void in the industry. He felt there was such a formidable gap between the captive and independent worlds that it was preventing reps who wanted to migrate to the independent side from making that switch. The former VeraVest advisor — who'd moved swiftly up the ladder to regional president — spent a lot of time with his firm's top producers. “They wanted more independence, objectivity and the freedom to do what was best for their clients,” he recalls. “And they seemed to resent their managers — wondering how we actually helped, and why we were paid such fat salaries from money that could be going into their own pockets.”

Still, for most reps, he says, making the move to independence seemed too daunting a challenge. Then, in 2002, his own “fat management” job was cut — nine months before the unprofitable VeraVest shut down. And, while job offers from competitors rolled in, Silverman had other ideas. He envisioned a “hybrid” business model for a broker/dealer, he says, which would take the best of the independent world — “the high payouts, unbelievable technology and the freedom to do what's best for the client” — and blend it with the kind of support typical of the wirehouses and larger b/ds.

And so, in 2003, at the age of 41, he launched Fusion Financial Group in Elmsford, NY, an independent financial advisory network with a business model of “supported independence” designed to make the transition to independence more seamless. He chose New York-based National Financial Partners (NFP) Securities to act as the firm's b/d. So far, the concept seems to be working. Today, Fusion has nearly 190 financial advisors operating in 26 states and managing over $4.5 billion in client assets. Last year, gross revenues topped $35 million, Silverman says.

Of course, Silverman's proposition is not entirely unique. With so many investors demanding a full array of wealth-management services, it has become harder for advisors to do it all on their own, says Dennis Gallant, principal and founder of Gallant Distribution Consulting. Meanwhile, competition for top advisors is intense, so independent b/ds are trying to fill advisor needs by offering greater support, infrastructure and affiliation options. “Across the industry you'll find more and more firms like this. It used to be you wanted a firm with good compliance and payout. Now it's gone well beyond that. An advisor wants the b/d to help him grow his practice and do succession planning, provide estate planning and wealth transfer. The big thing is going to be the scalability of their model,” says Gallant.

Making it Work

Silverman admits people questioned his ability to offer the benefits of independence together with the kind of back-office support offered by a Merrill Lynch at no extra charge. “The economics didn't make sense unless we could run a very low-profit-margin, high-recruiting-volume business,” he explains.

But he hired Seattle-based consulting and accounting firm Moss Adams and, together, they embarked on a rigorous six-month research and planning project to see if the idea would translate into a viable business. Moss Adams helped him determine that in three to five years' time, Fusion could be a great recurring-revenue business. But it wouldn't be profitable for at least two years. “I personally funded everything,” Silverman notes. “We determined that it would take 18 to 24 months before I could even draw a salary.” But now Fusion's revenues have exceeded Moss Adams' projections by 35 percent, he says.

From the start, he encouraged advisors to focus on recurring fees rather than quick transactional business. “We had to do a certain volume to make a profit,” he explains. “But, once we hit that critical mass, we figured we would grow exponentially if we had the right kind of business.” Fifty — six percent of Fusion's revenues come from fee — based business, Silverman says; 15 percent is from annuities; 13 percent from insurance; 7 percent from alternative investments; and less than 10 percent from transactional business.

But Moss Adams says Silverman's real strength is in the fact that he's offering a b/d on top of a b/d. “He's creating a value proposition on top of a great value proposition already in place at NFP,” says Philip Palaveev, senior manager for Moss Adams. He also offers his advisors a lot of powerful ideas in the area of practice management, he says.

One Size Doesn't Fit All

Fusion offers reps two different service choices. Reps who want to be completely on their own receive management consulting via Fusion's “entrepreneurial model,” and back-office support from NFP. This service model is the one being used by 90 percent of Fusion reps. The “entrepreneurial” reps earn a payout of around 90 percent and work in their own locations — running their businesses as OSJs (Offices of Supervisory Jurisdiction), Silverman says.

The rest of Fusion's reps use the “supported advisor” model: They work out of the firm's Elmsford headquarters, while Fusion manages the office space, rent, copy machines, Internet, phone systems, conference rooms, postage machines and paperless office resources. In exchange, these reps take a 2.5 percent discount on that 90 percent payout. “But, they get the benefit of economies of scale,” notes Silverman.

The “entrepreneurial” reps also receive a portion of the firm's revenue-sharing pool — based on their production. And Fusion doesn't charge any management or platform fees. “We get paid through NFP's share of the GDC, so the advisors affiliated with Fusion do not get any less than [they would if they were] affiliated with any other independent b/d,” Silverman says. Both supported and entrepreneurial advisors can turn to Fusion's ten-member staff for help marketing their businesses, negotiating leases and hiring staff.

The arrangement works for NFP, too, because Fusion's highest-quality advisors become potential acquisitions for NFP if they reach the right size. “The firm ties in beautifully with our goal of acquiring high-net-worth practices,” says Dodd McGough, NFP Securities' senior vice president of independent alliance. “They fill a void among entrepreneurs who need a little help getting started. They bring us the kinds of producers we seek. And, they offer those folks innovative solutions to ease the process of going independent. It's a win-win situation,” he says.

From Fantasy to Reality

As one might expect, creating this business wasn't easy. Working from an office in his house, Silverman used his own capital and spent 20-hour days interviewing several hundred top-notch producers throughout the country. “I also put together an advisory group — aside from Moss Adams — of people I really trusted to help give me input in the process,” he said. One producer was from a large independent firm, he recalls; one was from an insurance-owned b/d; and another one was from a wirehouse.

In September 2003, Silverman hung out his shingle at a newly leased office in Elmsford. He had eight paid staffers, but not a single advisor. “I wanted to get our infrastructure in place first,” he explains. Then they went out looking to recruit some of the best financial advisors in the industry-“focusing on client-centered advisors/advisory firms with high integrity and squeaky-clean compliance records.” There is no set-in-stone minimum for assets under management, Silverman says. “We're simply looking for highly productive advisors, or those we feel we can turn into highly productive advisors.” As it stands, Fusion turns away 60 percent to 70 percent of the advisors it talks to, he says.

Two years ago, Bud Kahn, an 11-year industry veteran who worked for Raymond James Financial Services in Pittsburgh, joined Fusion. His six-member firm Wealth Management Strategies is an independent enterprise serving the affluent market. Though he stresses his experience with Raymond James was “wonderful”, an article he read about Silverman's new firm piqued his curiosity. “I called Stuart and met with him,” Kahn recalls. “I realized that Fusion's ‘entrepreneurial model’ was a perfect fit for my business.”

Fusion has helped him grow at around 25 percent annual compounded growth rate over the last two years, something he attributes to the practice-management and marketing help he got. On the marketing end, the firm devised “nine specific financial solutions we could offer clients to differentiate us in our target market.”

On the practice-management end, he says, Fusion advised him not to go overboard with hiring, to create very specific staff job descriptions and to consider the image presented by his office space. After making the suggested changes, Kahn says, “our bottom line increased notably within a matter of months.”

Andy Brief, one of Fusion's first reps, who also came over from VeraVest in October 2003, says he thinks Fusion has got the formula right. “Other b/ds' success is really based on transactions — collecting a piece of the reps' business and operating on very thin margins,” Brief says. “That model is going to continue to get squeezed more and more, whereas [his] model is really facilitating growing your practice to where you might be encouraged to sell it to NFP in the future.” And that's exactly what he wants.

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