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Jim Nagengast President and CEO Securities America
Jim Nagengast, President and CEO, Securities America

Commissions Still Have a Place What pressures are IBDs under these days?

Jim Nagengast: The main pressure is the regulatory pressure. If you look at last year, we dealt with two major pieces of regulation—rule 2111 on the suitability guidelines and 408(b)2 on ERISA. For all broker/dealers, those required changes in processes and procedures in systems. All of the leaders I talk to, they’re all trying their hardest to follow the regulation, but sometimes you just don’t know how to interpret the regulation. Clear guidance from the regulatory bodies would be a big help.

WM: What does the future of the IBD business look like?

JN: We’re going to continue to see this barbell approach to the business where the big are going to get bigger and at the other end you’ll have these smaller, niche broker/dealers.

WM: What makes Ladenberg Thalmann, your parent company, different from other IBD acquirers?

JN: First of all, they’re already public; they’re not private equity. That’s a big difference versus some of the acquirers out there. With private equity, I think you’re always worried; they've got to do a quick flip or they’re looking for quick profitability. But Ladenberg’s really committed for the long-term.

The other thing that’s different from other acquirers out there is they’re also very committed to fully disclosed clearing. There’s no worry that we’re going to go self-clearing and we don’t have any entities that are self-clearing. We’re not building technology for self-clearing. That enables us to stay nimble and quick.

WM: You say there’s still a place for commission business, why is that?

JN: First of all, you have some smaller clients who might have under $100,000, where they need some advice. They may need basic start up services from time to time, but they don’t need ongoing advice on an annual basis. For smaller investors and people entering that stage of their life cycle, commissionable business may make sense.

WM: Has your firm scaled back the number or types of alternatives on the platform?

JN: Our philosophy is that if we don’t have a good product, we won’t put something on the shelf just to have something on the shelf. The challenge is liquidity. Investors sometimes don’t appreciate the need for liquidity and the benefits of liquidity.

WM: Do you think that liquid alternatives are the answer?

JN: I think you need a mix of liquid and non-liquid products. And you need good communication and disclosure around the characteristics. The average client doesn’t understand the need for liquidity, or they underestimate what can happen in the markets or their personal lives, where all of a sudden they have an increased need for liquidity. And it’s hard to measure liquidity. What does liquidity mean when the economy’s up 3 or 4 percent? But what does liquidity mean when the economy is tanking and we’re in a recession and they’ve lost their job, and their spouse lost their job?

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