Southwest's Population Growth

With four different broker/dealer subsidiaries, Dallas-based holding company Southwest Securities Group (SSG) offers a smorgasbord of financial services--everything from deep-discount online trading and clearing services to full-service brokerage.And as the company expands its array of services and its sales force, it has attracted the attention of both the business press and the brokerage community.

With four different broker/dealer subsidiaries, Dallas-based holding company Southwest Securities Group (SSG) offers a smorgasbord of financial services--everything from deep-discount online trading and clearing services to full-service brokerage.

And as the company expands its array of services and its sales force, it has attracted the attention of both the business press and the brokerage community. For example, this past November, Forbes magazine named SSG one of the 200 best small companies (revenues of $5 million to $350 million) in the United States, ranking the company 180th overall, based on a host of financial criteria such as sales growth and return on equity over the past five years (28% and 15%, respectively). SSG is poised for "sustained growth," according to Forbes.

Others agree.

"What is interesting about Southwest is that it has not only put together a formidable product platform, but it also has an equally formidable delivery system," says Michael Flanagan, a brokerage industry analyst with Financial Service Analytics in Fort Washington, Pa. "Those factors, combined with the environment at Southwest, have enabled the company to attract brokers at a furious pace."

BTS Expands, Changes Name Brokers Transaction Services (BTS), Southwest's largest subsidiary in terms of producers, in April changed its name to SWS Financial Services to align more closely with its parent. SWS has doubled its sales force in the past three years--to more than 700 independent contractors.

"A firm without a comfortable and conducive environment would not be attracting brokers at this rate," Flanagan says.

Although SWS serves stockbrokers throughout the country, its stronghold is in Texas. So it has ramped up a national recruiting campaign.

Recruiting independent reps is a fairly new mission for SWS, which was "reconfigured" about eight years ago to concentrate on this effort, says CEO Sue Peden. It previously focused on broker/dealer start-ups.

SWS is also expanding through acquisitions. In the past eight years, the company has merged six broker/dealers into its operations, Peden says. In July 1997, the company bought Dallas brokerage firm Cullum & Sandow, adding 115 brokers and $300 million in assets under management. "We have four [broker/dealers] we're looking at right now," she adds.

SSG's Own Brokerage Develops In addition to serving independent contractors via SWS Financial Services, Southwest Securities Group also offers brokers the option of employment with its largest subsidiary, Southwest Securities Inc. (SSI).

SSI operates 12 retail branches in Texas, New Mexico and California, with 118 full-time registered representatives. Most of the firm's reps are former wirehouse brokers, says SSI Private Client Group Manager Dick Edelman. SSI is recruiting both experienced brokers and trainees; it introduced its first training program in August 1998.

SSI accounted for roughly 85% of the parent company's $285.7 million in revenues during fiscal 1998. While the firm's main moneymaker is its clearing operation, which serves 225 correspondent firms (including banks and some day-trading operations), both of its brokerage units are growing.

Commissions generated by brokers at SWS and SSI increased by about $20 million, or 53%, in fiscal 1998, reaching $59.4 million from both individual and institutional sales. SSI's private client unit and SWS contributed equally to that increase.

A new wrinkle is the firm's online service, mydiscountbroker.com, rolled out in February and growing rapidly. Although Southwest has no plans to incorporate the discounter with full service, a spokesperson notes that the company's software could easily consolidate full-service and discount account information. In June, the firm announced its intent to acquire First Savings Bank of Dallas, which Southwest wanted for its online banking capacity.

Technology Drives Growth All firms face the challenge of investing enough in technology. "We're spending more money on technology than anything else right now," Edelman admits.

But SSG is not just investing in technology, it is also developing technology through its ownership stake in Comprehensive Software Systems (CSS), based in Golden, Colo. CSS creates systems that automate both front- and back-office brokerage processes, from contact and order management to clearance and settlement. Other partners in CSS include Ameritrade, McDonald & Co. Securities, Morgan Stanley Dean Witter, Raymond James Financial Services and Stephens.

SWS brokers have access to the Internet and all end-user technology. While some gripe about the associated expenses involved, most are grateful for the support.

"Right now, technology is the name of the game in this industry," Flanagan says. "Brokers not only appreciate good technology, they demand it."

SSG has been a public company since 1991. It trades on the New York Stock Exchange under the symbol SWS.

Broker/Dealers: Southwest Securities Inc. ...... Full-service regional firm, employs 118 retail brokers

SWS Financial Services (Formerly Brokers Transaction Services) ...... Broker/dealer for more than 700 independent reps

mydiscountbroker.com ...... Online trading firm, with 34 employees, including 16 reps

NorAm Investment Services ...... Clears for three Canadian broker/dealers, employs 85 independent reps

Other Subsidiaries: Westwood Management Corp. ...... Registered investment advisory firm

Westwood Trust ...... Investment management, trust and custody services

SWS Technologies ...... Internet, Web and corporate network solutions

SW Capital Corp. ...... Administers LOGIC fund for Texas government

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