Jamieson: Welcome. This is the first annual NAIP board retreat. Im Dan Jamieson, editor in chief of Registered Representative magazine and one of the NAIP board members. Were going to go around and have everyone make a brief introduction of themselves and tell us why they joined the NAIP and why they joined the board. First, Jim Harvey with Ragen MacKenzie in Seattle.
Harvey: I work for a regional in Seattle, and my personal business is with high-net-worth individuals who need fairly esoteric, advanced kinds of planning. I do a fair amount of trust work and manage trusts, and also work with executives with stock options.
And in terms of why I joined the NAIP, I felt that I wanted to take a proactive role in improving the professional image of brokers, which I think all too often gets unfairly excoriated in the press. And also, I think its important to promote the active enhancement of our professional skills and development so we do a better job for our clients. And finally, were probably the only professional group out there that doesnt have an equivalent to the American Bar Association or American Medical Association. I really think its important to let brokers know that we do have a voice, that they can get representation.
Jamieson: And T. Sheridan OKeefe, a rep at Robert Thomas Securities in Minneapolis, who founded this whole organization. Tom, tell us why you started the organization, and what do you hope to accomplish with this thing?
OKeefe: As you know, in 1991, I had some problems with a former employer, and I experienced how a brokers reputation could be thrown into doubt, how their livelihood could be threatened, how their license could be threatened, and there wasnt a lot that I could do about it at that time. Two years after that incident in 91, I decided to take legal action against that former employer and had a very difficult time because I couldnt find competent legal representation. That employer had adopted a strategy of conflicting files out at all of the major law firms in the Minneapolis-St. Paul area. That was one of the reasons why I started the NAIP in 1996--so we could provide that service for members. We have since built up a network of competent attorneys and law firms across the country.
That was an impetus. I also realized that the image of brokers had been downtrodden and that we should do something about it. Whatever publication you look at, they speak of brokers in disparaging terms mostly. But most of the brokers Ive known in the 12 years Ive been in the business are very good people. Theyre concerned about their clients. Their clients are their families, their friends--and they become their friends. Brokers are honorable people who have integrity and who are concerned about those people. And I wanted to change the negative image of brokers across the country.
Third, I wanted to have some representation in Washington. As Jim pointed out, there is no organization like the AMA or the bar association for brokers. There have been some attempts at this in the past, but theres really no formal organization like that. And we need a voice with the regulators, with the NASD and the SEC. We need some representation. They need to know how we feel about some of these issues--for example, the U-5 qualified immunity issue. They need to start listening to us and taking our voice into consideration with these issues.
Jamieson: Let me say one of the reasons I joined the board was that there seems to be a groundswell happening both among brokers and the small broker/dealer community about some of the regulatory affairs in Washington. Its always been my belief that the regulators--much as we sometimes beat em up in the magazine--really want to do well. But unfortunately, they just dont always hear from the other side. And I think brokers, being the people in the trenches, serving their clients, knowing exactlyhow regulations work or dont work, are in a tremendous position to offer some constructive input into the rule-making process. Plus, what Tom mentioned about building the brokers image--the media does not have a voice for brokers that they can go to, to hear their side of it. So with that, Ill get off my soapbox and introduce another board member, Gary Battenberg, a top producer with Royal Alliance in Houston and an industry veteran. Gary, whyd you get into the NAIP?
Battenberg: Well, with a background of almost 30 years in this industry, and having been with an insurance company, owned a bank, and having been a registered rep for almost 28 years, I see the convergence of all three of those industries coming together, quickly. Also, as an independent, we really have no unification effort as independents, to have any voice, to really know whats going on. So I contacted Tom. And I think there are a number of us that can bring something to the table from a sense of history and tradition as to how we got here.
Years ago, wed never traded five million shares on Wall Street. Now we trade five million shares a minute. Society has changed. Everything has changed, and yet were one of the most highly self-regulated businesses or industries in the world today. And most people dont have a clue how that works.
So I think if we can do nothing more than educate our own people as to how to go forward, how to recognize where weve been, and how not to make the same mistakes as we see changes in federal law, changes in state law, changes in disclosures, serious law being made. We should have a voice in Washington.
Jamieson: Next board member, Teri Harmon, PaineWebber, Newport Beach, Calif. Why did you get involved, Teri?
Harmon: A year and a half ago, I had some frustrating experiences, too, and was inquiring about what type of organizations existed to help us. We didnt have anything at that time, but I did hear about the NAIP, and my initial reaction was, Its about time we had something to give us that voice. What I would like to do is to be able to contribute to that. Id like to be able to help brokers understand what the issues are that were involved with and facing; what the future of our industry will be like; and to have some other nice benefits that might be along the lines of continuing education, networking and overall development. The voice is important, but there are many aspects to the dimension of what we do. Id like to contribute to that.
Im in my 15th year as a registered representative. I do a lot of financial planning, retirement planning, and plan on doing that for many more years.
Jamieson: Rich, did you have any comments? Rich Santos, publisher of Registered Representative magazine whos joined us for this chat.
Santos: Im delighted that Registered Representative could help this organization. To echo what everyone around the table already has said, Im amazed that a group of individuals, like registered representatives, who handle so much money and who are so important to the economy, dont have any representation. So Im very interested in increasing the awareness of the benefits the NAIP has for registered representatives.
Jamieson: Lets get into what weve done over this weekend in May in Chicago. Jim Harvey has been our group leader. Jim, weve got a group, weve got some membership building, where do we go from here?
Harvey: Well, basically, I think what weve accomplished this weekend is weve defined more clearly who it is we want to be, weve set some strategies in place and some key operating principles, those kinds of things. Weve laid out some plans, and we set some goals that I think are realistic and achievable.
A high priority is to grow the membership over the next few years. Well specifically target some of the larger cities and develop local chapters there. Because I think this organization, to be as successful as it can be, has got to be both a national organization in terms of voice and representation in Washington, but on a practical level, has to be local and interactive with the broker population. So were enhancing education and giving opportunities for brokers to develop themselves professionally, and encouraging an exchange of ideas not only on regulatory issues but on building business and that kind of thing.
Battenberg: I think I will take back from this, and Jim mentioned it earlier, that the AMA has an association that encompasses doctors of all types of specialties. We havent had any organization thats pulled together wirehouse brokers, independents, regionals, registered reps who are sales assistants and our lifeblood. I mean, this is an organization open to anyone interested in promoting the positive benefits of what we do as reps, and some of us are producers and some of us are administrators. Some of us do all types of different functions.
Harmon: I liken what we just did this weekend to what we do as a profession. When we do financial planning, we sit down with our client, we take inventory of where they are, then we set some goals, then we implement them. And were continually checking and readjusting. I think were at that kind of genesis stage of that whole process. Weve taken an inventory of where we are. I think our next step now is to implement these strategic ideas and goals.
Jamieson: One thing that will help--at least we hope so--is that the role of the broker will become more important, with more demands and responsibilities placed upon them, and theyll need professional development more than ever. Financial professionals are not going to become obsolete.
OKeefe: I dont think were going to become obsolete by any means. We have to know how the Internet works and access that information. But I know that most of my clients dont use the Internet, and executive clients that I have simply dont have the time or the inclination to use the Internet and to access that information. We also take the emotional element out of investing.
Battenberg: Let me give you an example, Tom, of whats really happening in todays society. Ive got a rep that just got licensed at a bank in Los Alamos, N.M., because they were losing customers to brokerage firms--all they could offer were fixed-income instruments called certificates of deposit at 4%. I started doing [bank brokerage] back in 1984, when nobody else had done that, and the feds said we couldnt do that. And now every major brokerage firm has a relationship with a major holding company of a bank, not just in this country, but all over the world, a la Travelers and Citicorp, to pick up two billion customers. Who is going to be the messenger? Its us.
Santos: The broker is going to become more important in the future.
Harmon: There have been several studies that show that the average couple can spend anywhere from 90% to 95% of their time making a living, in addition to maybe some family time or whatnot, but less than 1% of their time managing the funds that they spent the 95% to accumulate. Take as an example what we now have--regular IRAs, deductible IRAs, Roth IRAs, Educational IRAs. We have all these tax law changes. What do you do?
Santos: What are the ramifications?
Harmon: Yeah. Im in this income, but then Im single, but I file with this person here, and its so confusing that everyone needs help. Even the clients I work with who know this stuff, and they follow it, and Im really just a back-up system in case something happens to them. Theyre confused.
OKeefe: Right. You know, I also think that theres evidence that a client will play around with a small amount of money, up to a certain amount of money. But when you get to a certain level, I dont know what the figures are in various surveys, but then they want serious advice.
Jamieson: One thing we plan on doing is making sure that this message gets out as to what financial professionals offer. There are a lot of intangibles. That side of the story simply hasnt gotten out there, and being a journalist, I can tell you the big reason is that reporters dont have somebody to call in their Rolodex who represents brokers. Now weve got Tom OKeefe, and hes already been quoted widely in some publications. But were also going to have several or many chapter presidents at some point. Weve got a couple right now. As our membership base expands, well get the word out to brokers how to contact their local media and so forth. They can stay in touch with local media and say, Hey, heres a financial planning problem that were seeing with our clients.
Harvey: Well, I was going to say, one of the things Gary brought up earlier and Teri echoed when we were talking about Roth IRAs and the misinformation out there, if clients are not getting advice from a professional broker, then theyre getting it somewhere else. And if theyre getting it from a clerk at an 800 number at a no-load fund or--Ive forgotten what you guys called it--
Harmon: No help.
Harvey: --a no-help fund, you know, basically, they have to assume that the person theyre talking to knows what theyre talking about. I think Gary said that hed done a Roth IRA conversion test on several different sites on the Internet and got completely different answers.
Battenberg: Let me tell you how that happened. This is a true story. About a month ago, I was at my golf club in a Saturday morning event where you are paired with different people. We get done with golf, we sit down for lunch, and they all know who I am and what I do. We sat down, the discussion went immediately to Roth IRAs. Now, one guy at the table was probably worth $2 or $3 million, and he had his ideas because he got his information from the T. Rowe Price analyzer on the Web.
Another guy was getting ready to take early retirement and he was advised by someone that he needed to make a quick conversion, fast, in 1998, so he could spread his taxes, he thought, over 14 years. But he wasnt sure.
And then the other one said, Well, Ive read about it, and I dont think this is a very good deal. Batt, what do you think?
And Im sittin there goin, I dont believe this. Here are three intelligent, well-to-do people. They have no clue what is going on here.
Santos: Gary, this only proves that money does not automatically confer brains.
Harvey: There are so many components with each one of these kinds of IRA accounts or with some of these estate planning issues, or gifting strategies--the kinds of things that we do every day as a matter of course. And we dont just do it on our own. Were constantly asking each other what we do. Were exchanging ideas. Well, what this organization is intending to do is to formalize that exchange.
Harmon: NAIPs time has come, and its time for brokers to get involved, plain and simple. If we dont, then we cant complain about anything that happens.
Santos: Good point, Teri. When I joined the magazine as publisher, one thing I have found to be very true is that brokers have a tendency not to become involved until it affects them.
OKeefe: In fact, Rich, thats our biggest problem--apathy among brokers. When we started the weekend, I cited a story of a telephone call I got from a rep somewhere in the country, and he told me that what we need is a white knight. We need a white knight, a Ross Perot, to save the day. And I listened to him for a while, and I got a little bit upset with that particular caller because, well, I said, With all due respect, sir, you know, theres not going to be any white knight. I said, You're the white knight. We all have to participate. We all have to contribute, whether joining the NAIP, or writing letters to the SEC or Congress or whatever it is to change the system. You cant expect somebody else to do that for you.
Harvey: Teri was saying when things are looking great, thats the time when Im telling my clients, Hey, this is not going to go on forever. You know, theres going to be a downside, so dont expect these unrealistic rates of returns to perpetuate themselves--there will be a different point in the cycle. And in those times, its important to dampen the enthusiasm. And when everybody hates the market, the last thing you want do is put money in the market. Everyone knows they should take their money and bury it in a mattress or stick it in a CD. Well, thats not the case. Youve got to think ahead a bit. The same applies to brokers, too.
Battenberg: I think brokers around this country would be shocked if they could have heard that for two days here, the primary theme was education. If I had to say there was one theme to this whole meeting, it is education, in a society that really lacks an emphasis on education anymore.
Harvey: Education not only of the brokers, but also of our clients.
Battenberg: It was a theme. I mean, as I made notes, it was a theme. Education of the broker, education of the investor, education of our firms, education of our compliance officers, education of the NASD, the SEC, Washington, the whole nine yards--the theme of education. And I really dont think most people would think we havent even seen the outdoors in two days.
Jamieson: The weathers been great.
Battenberg: Sitting in a ... yeah, the weathers been great, I think. We dont know.
Jamieson: Theres a golf course right out here, too, Gary.
Battenberg: Yeah, we dont know. But having said that, I think brokers, good brokers yearn for, want and need that education, from someone with independence who they can trust. Thats not someones agenda. We have no agenda, per se. Our agenda is to educate our profession. It is to help as many people as we can.
OKeefe: The question is, whats going to happen to those brokers, Gary, if they do not educate themselves?
Battenberg: Dinosaurs. I mean, the same thing will happen over time to brokers who dont get into computers, technology, compliance issues, regulations--theyll be gone. Were not going back to rotary dial.
Jamieson: One thing Ive noticed in this industry is that its incredibly insular, whether you're talking about top management or brokers. Top managers, I would guess, come mostly from within the industry. They have all come up from the production ranks or management ranks within the industry. Same thing for brokers. They share ideas among themselves maybe at a firm conference, but they dont get an opportunity to network. And one of the things the NAIP is going to offer that I have just never seen is a group for brokers on a local or national level where you can get together. Different brokers. Different firms. Doing business in different ways. Exchanging ideas. Thats going to be crucial for building that knowledge.
Harvey: You know, one thing we havent talked about is the annual conference and some of the plans we have for putting on regional conferences. And I think thats going to be a very important focus of what it is we plan to do. Particularly on this issue of education. Because, you know, a guy like Garys been in the business for 30 years, and youd be a fool not to listen to him. And hes probably forgotten more about mutual funds than Ill ever know. Have him get up and talk about an issue like net asset value exchanges, or some of the pitfalls of funds, the things that people think they understand about mutual funds but dont. They dont realize how much the internal fees are, or how often that portfolio turns over, or whether the same manager is still running the fund. Or whats the effect of an enormous influx of capital into a particular fund.
Santos: Changing gears a bit, other broker groups have been tried, and theyve failed. Maybe these are dangerous words, but why is it different this time?
OKeefe: I dont think the conditions existed at the time these other groups started for them to flourish. There was one in the 60s, and there was another one started by Registered Representative magazine in the 70s. But there was not the oppressive regulatory climate that were in right now for brokers. There wasnt the complexity, the technology.
Jamieson: We didnt have the competition. The landscape has completely changed. You didnt have all the professional issues we have now, like what am I going to be doing in five years? In the 60s or 70s, you traded a few stocks at a full commission, and you went and played golf after the market closed. Times have changed. Brokers need a little more support.
Battenberg: You cant go to any newsstand in America today and not read a story about a mutual fund, a variable annuity, life insurance policy, an IRA or whatever. And Im telling you, 30 years ago, you couldnt go to a newsstand and find an article about this subject. So somehow in the last three decades, we have gotten into a trillion-dollar industry despite misinformation and a whole lot of issues and integration of technology. Weve gone from an agricultural to an industrial to an information society. And nobody is representing the brokers?
I mean, think about the real impact of that and why everyone should join and have a sense of history and tradition. When I started, there was one basic form of pricing in our society--an 8.5% front-end load. I dont think there are any left. There may be, but weve gone from 8.5 front-end loads down to zero, and were now inching our way back. So somewhere, well find the floor of whats the proper compensation. But now weve got the SEC talking about compensation--to do this and not do that, like we do all of this stuff for nothing, and we have no overhead and no cost. Excuse me. Many of us bust our tails to get information. The instant it comes across the Net, we have a fax distribution to our brokers who are in that position. A [fund] manager changes, a manager dies, we have instant communication to those people. Lots of good brokers do that. Ive never seen a story written about that.
Santos: While the timing for this organization to succeed may be better than those in the past, other groups missions and mandate may have been self-serving. It may be tied to a product theyre selling or a service theyre selling, whereas with the NAIP, everyone here has volunteered to come to this weekend event at their own expense. Everyone is here to help the industry and the registered rep.
OKeefe: Thats a good point, Rich. And just think what we could accomplish if even a fraction of the 550,000 registered people did the same thing.
Santos: I hope a lot, because there are individuals out there who could do a better job than we are right now. Were anxious to hear from anybody, as many registered reps as possible. And hear where their concerns might lay, and how they can work on a committee and help us stimulate the interest we know exists.
OKeefe: Id love to hear from those folks, and they can reach me ...
Santos: Whats the best way?
OKeefe: ... at 612/322-6247. Thats our telephone number, or they can E-mail me at [email protected]
Harmon: I have one comment I think should be added somewhere in this story, and that is that registered representatives should feel proud to be a part of this organization. We shouldnt have anybody feel like, Oh, I cant join for fear that my firms not going to like this. Because one of our goals is to get this organization to the extent that not only are we all proud of it, but there are companies that cant afford not to align themselves with it because of what were doing, the ultimate work involved. Were enhancing the public image, but were doing a lot of other things to make everybody proud. This is something to be proud of, and put on your resume, to put on your bio you share with your clients.
OKeefe: Umm-hmm, because I think were the only organization for brokers that actually has a code of ethics and rules of conduct that we expect our reps to follow.
Harvey: One of the things we talked about is were also trying to develop practices that will help brokers not only stay out of trouble, but more than that, to do the business the right way. How can a compliance officer have a problem with that?
Jamieson: How can you argue against brokers as fiduciaries?
Harvey: I mean, we really do feel that way. I know I do. Santos: Does the NAIP have a theme song that we sing at the close of this?
Harvey: We have secret handshakes, but we cant tell you that, cause well have to kill you.
Jamieson: Did we touch on our accomplishments for the last year?
OKeefe: Well, weve accomplished several things, Dan. First of all, we were the only employee group at the presentations of the blue ribbon panel that the NASD put together last summer, last June, to present our views about Title VII (discrimination) issues, and whether Title VII employment cases should be conducted in arbitration. We also gave this blue ribbon panel some of our views on the U-5 issue and defamation. At that time, we also made some visits to certain members of Congress while we were in D.C. to let them know our views. And weve also done some letter writing campaigns from time to time to congressional representatives to educate them about some of the issues.
Weve created and built our attorney referral network, and were up to about 15 law firms now across the country to help our members out.
Also, we made brokers aware across the country through our newsletters, through the RR column, of issues that are coming out of Washington that they never would have been aware of before. And also, with our Web site, we have all these issues listed, to make them aware of the problems, and also through some of the other publications we have, for example, with the Securities Industry Digest.
And we are constantly interacting with the media. You know, different reporters. Not just with the trade publications like yours, but with the wider press, The Wall Street Journal, Investors Business Daily, Washington Post, to build up those relationships, and to create a more positive image for brokers in the media, rather than just seeing the negative image all the time. In fact, Jane Bryant Quinn recently did a column on the CRD issue, and she was very positive about brokers in that column and the troubles they can have with an inaccurate record. In the past, you know, Jane has been a little bit tough on brokers, and she was completely the opposite in that particular story.
Jamieson: So where are we going from here?
Harvey: First of all, I think the next year to 18 months is going to be pretty exciting. Well be establishing chapters, membership will grow, and well be planning our annual conference. And I think people are going to have a pretty good opportunity to help shape the direction of the organization as we go forward. Well be developing an agenda for the conference, as well as structuring some information and presentations and workshops that I think will be of particular interest to our community of brokers and their clients, too.
Battenberg: What I would like to see over the next year to 18 months is what I know to be true. In the registered rep community, there are some of the most talented people in the world, with many, many connections, talents, ideas, and this type of thing. And no ones ever really tried to bring them all together to fight for the customer that we all respect the most. How in the world could we not respond to that noble cause? To represent our customers, to represent their best interests? And thats the No. 1 thing we started talking about here two days ago, and weve never gotten off that theme. Thats my story, and Im stickin to it.
Jamieson: Anything else, Teri?
Harmon: Im looking forward to planning the conference, which will possibly be in the fall of next year, so stay tuned to your NAIP newsletter. You will be hearing about that. The next three weeks, the board will be getting together on the phone to continue this process we started over the weekend. Well continue to stay in touch and move forward, which should be very exciting to see.
OKeefe: Again, Id just like to thank you all for giving your weekend away ...
Harvey: Id like to thank my mother, and all those who made--
OKeefe: But seriously, Id like to thank Registered Representative magazine for helping us this last year, and all the board members for giving up their time with their families, and for the expense involved in trying to better the industry and the profession with what were trying to accomplish here with the NAIP.
Jamieson: Again, well said. Thanks, everyone.