Forward Thinking

Four Registered Representative Outstanding Brokers from the past provide a glimpse of the industry's future. They see personal service winning over technology. Steve Booren Linsco/Private Ledger, Greenwood Village, Colo. Outstanding Broker: 2000 Rookie year: 1978 Business mix: 95% fee-based. Byron Braun First Union Securities, Fort Wayne, Ind. Outstanding Broker: 1997 Rookie year: 1978 Business mix:

Four Registered Representative Outstanding Brokers from the past provide a glimpse of the industry's future. They see personal service winning over technology.

Steve Booren
Linsco/Private Ledger, Greenwood Village, Colo.
Outstanding Broker: 2000
Rookie year: 1978
Business mix: 95% fee-based.

Byron Braun
First Union Securities, Fort Wayne, Ind.
Outstanding Broker: 1997
Rookie year: 1978
Business mix: 40% is managed or in funds, 60% a traditional mix of stocks and bonds.

Eileen DeVries
Merrill Lynch, Grand Rapids, Mich.
Outstanding Broker: 1999
Rookie year: 1976
Business mix: 55% is “annuitized,” 45% commission.

Kevin Taylor
Merrill Lynch, Plano, Texas
Outstanding Broker: 1997
Rookie year: 1980
Business mix: 75% fee-based, most with outside money managers; 25% traditional commission business.

***

RR: In the past 25 years, we've seen a lot of change. But perhaps the trend with the most momentum is the move toward fee-based business. What's driving that and will it continue?

Taylor: The [fee trend] took hold because the transactional side has become commoditized. But it's also been client driven to where we're spending much more time on the process and putting structures in place for clients.

DeVries: We have access to some of the best money managers in the world, so what makes individual brokers think they can do a better job than the managers who handle some of the biggest pools of money around? Why not use them for your smaller clients?

Braun: I concur, but I think the trend is about leveraging time for both parties. Clients have a comfort level that an independent money manager is managing their assets for them on an ongoing basis. And consultants have time to deal with broader issues that clients want to delve into, such as estate planning and retirement planning.

Booren: We're all fearful of commoditization, but even asset management is a commodity. We've always been successful because we bring much more to the table than asset managers. We bring relationships. We're there for the client, to help them understand what the wiggles do to the portfolio. We're there to help them understand that 10, 20, 30 years from now, there will be enough — and enough is different for every client.

RR: What do clients have today that they didn't have before and how has that changed their expectations of you?

DeVries: When we started in business, there were hardly any mutual funds around. There were no money funds, either. So, to open an account, you sold clients a stock or bond. It was a transaction.

Taylor: The client has the ability to judge performance now. The information and technology out there has created a push toward the adviser direction.

Booren: The only thing we used to have is beta. But now clients have a lot more information that's better — information that tells them where returns are coming from. However, that assumes clients want to know. I don't know if my clients want to know. They're delegators.

DeVries: Yes. That's where a lot of clients see brokers as adding value. We know the difference between small-cap growth and small-cap value. That's the reason they are willing to work with us.

Booren: It's no different when you go to a doctor. You depend on the doctor to diagnose the problem, know the situation, treat it and monitor it.

Braun: [Years ago] the information wasn't as easily available as it is now. I use a certain chart in almost every meeting. It goes back 15 years and tells clients what subpocket of the market is performing best. While everyone was going to the growth pocket last year and the year before, the allocation kept people in check and kept them out of temptation. This is the kind of thing we didn't have in the 1980s.

Taylor: Twenty years ago, client situations weren't as complicated as they are now. You had your pension from your company as opposed to running the money yourself or with an adviser.

Booren: And the phrase IRA rollover was nowhere to be found when we began.

RR: And with 401(k)s, you suddenly had a nation of little money managers.

Booren: What's amazing is the shift away from pension plans. Twenty-five years ago, the company you worked for provided retirement plan benefits for you. Today, it doesn't. Corporate America got away with highway robbery. Previously, when you had a pension or profit-sharing plan, who put the money in? The company. Today, who puts the majority of money into your retirement plan? You — through salary deferral.

It's amazing that employees say, “Gee, I'd rather have a 401(k) plan than a pension.” They don't understand they're the ones funding the 401(k). It was an incredible sales job by corporate America.

RR: What do you see happening with baby boom retirees?

Booren: If you look at the recent tax bill, IRA contribution limits are going up to $3,000, $4,000 and $5,000. And 401(k)s are going up to $15,000. The legislature is saying Americans must fend for themselves, and that comes back to our business. If professionals provide prudent advice, we gain trust and business in the long term. The future has a clear message [for investors] — take more responsibility and use the services of consultants to help you through the journey.

RR: That could be quite good for business.

Braun: I think so, especially the increased IRA contribution limits — $5,000 a year, per person. That becomes an extremely meaningful amount of money, regardless of who you are.

Booren: I think we need to help Americans understand that our country is about self-sufficiency. If you don't save or have some sort of strategy, you'll be working the night shift at McDonald's. It frustrates me when I see the statistics on savings. I can't believe the majority of people aren't saving. If Joe Six-pack isn't putting money away, he's not going to have choices during retirement.

RR: What have been the landmark changes that impacted the way you do business?

DeVries: A landmark for me was when money funds and CDs were introduced. Before that, we had no way to accumulate money, earn interest on it, and then put it into the market when we thought it was right.

Braun: Yes, the liquid money market account changed our business. I remember calling people and reminding them, “You gotta give me a check for the stock transaction.” That was a very cumbersome process. I was a young broker when money accounts were introduced, and I thought they were wonderful.

Booren: I agree. Another landmark for me was converting from commission- to fee-based business. Instead of transactions, I went to using money managers, fee-based mutual funds or advisers that have discretion. Basically, it put the client and me on the same side of the table.

Braun: Another big change has been in technology. I remember sitting next to the old Dow Jones tape, where you actually had to roll the tape to get information on, let's say, Mobil Oil. If it was 2 in the afternoon, and the data was at 8 in the morning, you had to roll the tape back and make a mess on the floor. I think the only information at the time was The Wall Street Journal and Barron's. Technology is a close second to the liquid money market.

DeVries: You can sit at your computer, enter your order, and within three seconds you have a confirmation back. We used to wait overnight to get a confirmation.

Taylor: Technology is providing clients with a better experience. I think that's really driving things at the moment.

RR: What do you see going on with technology in the future? What tools will make a difference for your clients and your business?

Braun: Technology is always going to evolve. It will enhance our ability to help people in their endeavors. But a human being wants to do business with a human being. That's what differentiates us from the 800-number-type firms. So I don't know where technology is going to take us. It could be managing accounts via wireless Internet or maybe even beaming the client to your desk like “Star Trek.” But what we ultimately have is a relationship. That's golden in my book.

Booren: I'd agree with that. Look at the automobile industry and the effort it made to sell cars online. People don't buy cars online. People still go to car dealers, even though sometimes that's a hassle. People still want to do business with an individual.

In our industry, applying technology could improve the experience. I can't wait until we can be looking at each other on a screen. The picture phone concept is around the corner. I think people will like that. And again, it makes that experience better.

RR: What knowledge and expertise will you need for the future?

Taylor: We're all having to become more knowledgeable and certainly more focused. The fact that clients are more educated and informed requires us to be better. The client will be capable of distinguishing among firms and advisers that have a breadth of knowledge and products, and those that don't.

DeVries: Today's teenagers will be clients when I retire, and they're going to be so technology-smart compared with brokers. That means the knowledge brokers need for the future is [enormous]. But also, brokers will need to have expertise in managing money in ways that are even more detailed.

Braun: We must take it upon ourselves to increase our knowledge by keeping up with important information. But we also must know our limitations. We can't be all things to all people, so maybe the future lies in specialization. For example, people might form groups, collecting specialists in insurance and other areas. It's a kind of doctors' practice concept — a group of specialists coordinated through the group, which has a common direction.

Still, I don't think we should forget a basic building block — that is, being respectful of the human beings who are entrusting us with their money, and being very accessible to them. To this day in my office, there is no voice mail. We pick up the phone and address concerns.

Taylor: I agree. You have to be a trusted adviser. Even if you're segmenting your clientele and providing different service channels, you've got to focus on the clients. You have to be totally involved with them. You can't just touch one aspect of what they're doing in their lives. In the end, we're back to the core: building relationships, setting ethics. That wins out.

A Message to New Reps

RR: What is your advice for a person getting into the business? Do you think it's more difficult to build a business today than 15 or 20 years ago?

Braun: It is more difficult to start in this business, so align yourself with a seasoned broker and get into a group or partnership situation. The competition is intense out there. You've got to have a lot of enthusiasm and a smile on your face. You've got to love your job and have passion for it. People feel passion. If you have passion, business follows.

DeVries: Anybody that has passion and always does what's right for the customer builds a business easily. If you're always looking for what's right for you, it's more difficult.

Booren: Imagine picking up the phone and cold calling today. You could be doing nothing but leaving messages on voice mail. You would not be able to connect with anybody. The only people who cold call today are aluminum siding salesmen.

Braun: I can't imagine being 22 years old today and trying to get into the investment world without the guidance of a group or a senior broker. That's the logical way to go — a kind of apprentice program, like some of the plumbers' unions.

RR: Yeah, have a brokers' union. Where can I join? — D.J.

Timeless Wisdom November/December 1977

“Every broker makes mistakes. When the average broker makes a couple in a row, he loses the client to another broker. The process continues ad infinitum until that client finds a friend who just happens to also be a stockbroker. A client cannot forgive a broker for making mistakes, but he can forgive a friend.”
— Marvin McIntyre, Legg Mason, Washington, D.C.

Timeless Wisdom January/February 1979

“Financial planning is like navigation. If we could establish where [clients] were and where they wanted to be in the future, arriving at their desired destination did not appear to be too difficult. The problem was not knowing the two points.”
— Venita VanCaspel, CFP, VanCaspel & Co., Houston, Texas

Timeless Wisdom June 1981

“A broker is an outside salesperson who sits inside. You don't drive out to meet the client, and you don't get walk-in traffic. It's a unique type of selling we do, so unless you find your niche and have an effective plan to go by, the progress you make will be haphazard.”
— Rosalie Crawford, Shearson Loeb Rhoades, Fort Lauderdale, Fla.

Timeless Wisdom July 1982

“[Brokers are] in such a hurry to make changes. Anybody who's worth his salt is constantly offered more money to change jobs, and I think it's too bad that people do it so quickly today. There's much more to a career and working than money.”
— Robert Linton, Drexel Burnham Lambert, New York

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