Fighting The Brand X Syndrome

Picking an independent broker/dealer to join is a daunting task. After all, on paper, most independent b/d networks provide similar platforms and services. While every firm will say it has it all and, in most cases, they really do in the end an advisor's decision is based on qualitative factors and not just cool, clinical analysis. That is to say, all things being equal, advisors who have become independent

Picking an independent broker/dealer to join is a daunting task. After all, on paper, most independent b/d networks provide similar platforms and services. While every firm will say it has it all — and, in most cases, they really do — in the end an advisor's decision is based on “squishy” qualitative factors and not just cool, clinical analysis. That is to say, all things being equal, advisors who have become independent contractors, and even the firms themselves, say it boils down to feel, culture and personal touch.

Several mid-size b/ds- — those with between 600 and 1,000 producing reps — think they have discovered the “sweet spot”: enough scale that they can offer competitive technology and platforms, combined with a small-firm personalized touch. Each independent b/d recruiter says his firm has a unique culture, but the challenge is holding onto that culture as the b/d continues to grow.


Many b/d executives will acknowledge that the brokerage business is highly competitive, with firms offering very similar platforms and services. So, it's just a question of choosing which b/d's business model fits you best. “To say one model is better than the other is crazy,” says Peter Grifo, vice president of recruiting at Cadaret, Grant & Co. “It all comes down to looking for a match.” Every advisor is looking for freedom, choice and someone to provide all the services he needs to make it on his own. “Good technology, strong compliance, depth of personnel and experience — all those concepts can separate one b/d from another,” he says. “But where a firm truly can differentiate itself is in the type of relationship it has with its advisors, and that begins with the firm's culture.”

As a privately owned company, Cadaret doesn't have to affect an independent image; it's for real. “We respect an advisor's autonomy both as a provider of financial advice, and as a business owner,” Grifo said, “And we tend to attract advisors who like that mentality.” To that end, Cadaret works to support the advisor's brand, and doesn't necessarily promote its own brand to the retail investor. “Only the advisor should know the Cadaret brand,” he says. “We are happy to provide support in the background.”

Technology also can be a differentiating factor. Ten years ago, the wirehouses had the independents beat because of the cost of technology, Grifo says. But over the past several years, that gap has been largely erased, and now the better firms more or less have the same level of technological capabilities. So it is not so much the technology itself that differentiates one firm from another, as it is technology support and service. Indeed, Cadaret doesn't just roll out new technology, it also helps advisors understand and implement it, he says. Most importantly, it doesn't force its technology on an advisor.

Another differentiating factor is personal service. For example, when an advisor calls the home office of Cadaret, he knows he will get to speak to someone directly because the staff has no voicemail. “It demonstrates our attitude toward support, and advisors appreciate that level of accessibility,” Grifo says.

That is key for all independents. According to Tim Murphy, president of Investors Capital, his firm's very size helps to keep its service personal. Investors Capital prides itself on management's personal relationships with the firm's advisors. “With a manageable number of advisors — about 650 producing reps — you really get to know everyone really well,” he says. “The relationship goes beyond just a name and a number.” Of course, smaller b/ds could argue the same. But Murphy says Investors Capital's scale allows it to do more for its advisors in terms of providing platform tools and services.

To differentiate itself from its peers, however, there is a need for Investors Capital to compete on something other than product and payout, Murphy says. “The industry has become commoditized,” he says. “We all offer the same mix of products, and we all pay out about 90 percent to our top producers. Even upfront money, in the form of forgivable loans, has become commoditized.” That leaves just service as the lone area for differentiation.

Barry Knight, president of Next Financial Group, says there are a lot of things everybody does pretty well, but there are two things that his firm does to separate itself from the pack. The first is the firm's ownership model and what it means to advisors, and the second is its commitment to helping advisors grow their practices.

Next Financial is 93 percent owned by its advisors and employees with no one owner holding more than 10 percent. Everyone has a chance to buy into the private company when he joins, and can periodically add to his holdings up to a total stake of 1 percent, Knight says. Furthermore, the firm's directors are division managers or heads of offices of supervisory jurisdiction (OSJs), so the only constituency Next Financial serves is the advisor. “We are not beholden to anyone but ourselves,” he says.

This ownership structure also gives advisors a loud voice in the company, Knight says. “We have a culture of trying to say ‘yes’ to advisors,” he says. “We don't dismiss an idea just because it has never been done before, or is not in the best interest of the company.”

To help its advisors win new business, Next Financial has a separate company dedicated exclusively to that goal. “There is the advisor's vision, and there is our dedication to make it reality,” Knight says, adding that there is no one approach to tackling the process. Among the programs it offers are a hometown marketing program to help advisors build their own brands, advanced marketing programs for more experienced producers, coaching programs for advisors of every level and acquisition- and transition-related services. “We do more things in more ways to help our advisors expand their businesses,” he says. “It's not just a commitment; it's our passion.”

Jeff Montgomery, CEO of NFP Securities, says there are four ways his firm differentiates itself from the pack. The first way is by segmenting its producers into relationship groups based on their areas of specialty, he says. In doing this, each group gets its own training, meetings and marketing support, as well as customized tools.

NFP also offers customized technology, which involves tailoring off-the-shelf products to the needs of its advisors. For example, NFP has a proprietary annuity search engine that helps its advisors navigate an increasingly complex product line, Montgomery says.

The third way NFP differentiates itself is through practice management. Although almost every b/d has such a group, NFP's in-house team was modeled on Moss Adams' research, and is staffed by consulting industry personnel, Montgomery says. In helping advisors run their businesses better, the team provides on-site consulting services, business-planning assistance, help hiring staff and succession planning services, he says.

NFP employs a recruiting approach that is somewhere between the wirehouse and independent models. The firm employs an acquisitions team that works with advisors to buy their practices, yet the advisors keep half of all their earnings and maintain their autonomy, Montgomery says. In fact, 95 percent of all decisions — including all day-to-day business decisions — are still in the advisors' control, he says. The only exceptions are large expenditures and succession planning, which need to be approved by NFP.


David Levine, national sales manager at GunnAllen Financial, says his firm's biggest differentiating factor is its flexibility. While other b/ds define themselves by one or two business models, GunnAllen supports all types of advisor businesses, from commission-based, to fee-based, to everything in between, he says. The advisor is free to choose the model that works best for him.

GunnAllen's platform provides advisors with substantial access. On the investment side, advisors can participate in the firm's investment banking and syndicate work, partake in alternative and private equity investments on the same terms as institutional partners, and access services and products from a wholly-owned insurance agency licensed in all states, Levine says. On the client side, advisors can drum up new business among colleges and universities through the firm's collegiate financial services group, which is an endorsed provider, he says.

Beyond customized technological support and practice-management services, one unique area where ProEquities puts its advisors first is compliance. While many larger b/ds have institutionalized their compliance departments, ProEquities sees new regulations as an opportunity to collaborate with its advisors on a policy that makes sense for everyone, according to Mike Mungenast, ProEquities president. That process includes having everyone read the new regulation, creating a draft and then discussing it with a select group of OSJs, preferably the ones that will be most impacted by the rule. “We don't see compliance as a sales prevention unit but as a business continuation unit,” he says, adding that compliance then re-drafts the policy using input from the OSJs.


As with many mid-size b/ds, the challenge for NFP is managing growth. NFP's Montgomery says it segments its advisors. “Because each group has its own management team, it allows the firm to maintain personal relationships with its advisors and keep the company more intimate,” he says. In addition, the set-up facilitates quicker feedback and faster responses.

ProEquities' main challenge is growing the firm while maintaining the competitive advantage of being the right size. “We need to be big enough to be relevant, and to sustain the critical mass necessary for our technology — but without losing that personal touch,” Mungenast says. Given the high cost of growing through acquisitions and recruiting and the firm's low single-digit profit margins, ProEquities is focusing its efforts on helping existing advisors expand their businesses, he says. And it seems to be working: Growth this year is running about 37 percent, well above the firm's target of consistent 15 percent growth in revenue and assets.

A concern for Investors Capital is the proliferation of upfront money. “It's a necessary evil — and we all do it — but it's a slippery slope,” Murphy says. “I don't want to get caught in a cycle where we are trying to keep up with the wirehouses.” Indeed that is a problem, since margins for midsize firms are already thin, typically under 5 percent. “I can understand 10 percent of trailing 12-month revenue for transition purposes, but I cannot tolerate 20 to 30 percent forgivable upfront at these margins,” he says.

The challenge for Cadaret is fighting the bureaucracy that can creep in with growth. The firm is having a great year, with production among its top 25 reps up 40 percent over last year, and overall growth up well over 20 percent, Grifo says. “Amid all that growth, it's easy to forget about what's important, and create new processes and forms,” he says. “But we always need to remember to respect the relationship advisors have with their clients.” That is why Cadaret makes choices with an eye toward avoiding any unnecessary, onerous hurdles for its advisors.

GunnAllen's main concern is maintaining its investment in technology as it continues to grow. The firm recently spent a lot of money on new supervisory systems and, as it continues to grow, would like to deploy the best technology to deal with the regulatory environment, Levine says. In addition, it needs to continue to help advisors who want to use different tools. However, costs are rising and flexibility comes with the price, he says. “The trick will be finding a balance of service, support and flexibility that makes economic sense,” he says.

The biggest challenge for Next Financial is maintaining its culture as the firm grows. “Growth is the enemy of culture,” Knight says. “And we want the experience of rep number 1,000 to be the same as rep number one.” Although the firm has been growing an average of 40 percent annually since its founding, and is on target to do the same this year, he vows that Next Financial won't grow beyond its ability to provide that unique, personal level of service.


Name HQ Location # of Producing Reps Slogan
Cadaret, Grant & Co. Syracuse, N.Y. 850 A broker/dealer that makes your life easier.
GunnAllen Financial Tampa, Fla. 790 A robust platform to help you grow your business.
Investors Capital Boston, Mass. 650 Big enough to be competitive, small enough to care.
Next Financial Group Houston, Texas 875 Executing the power of vision, values and voice to change destinies.
NFP Securities Austin, Texas 1,400 Serving entrepreneurs based on their unique practice profile.
ProEquities Birmingham, Ala. 850 Listening to what reps want, and working like heck to deliver.
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