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The Indie Man

The independent contractor broker/dealer model is growing to put it mildly. In fact, between 2003 and 2005, the sector saw a 32 percent increase in revenue.

The independent contractor broker/dealer model is growing — to put it mildly. In fact, between 2003 and 2005, the sector saw a 32 percent increase in revenue. Yet, there is a feeling among some in the independent b/d community that regulators are biased against the business model, because regulators believe far-flung, independent-contractor advisors are inherently too hard to supervise. John Simmers, CEO of ING Advisors Network, which has 7,500 reps, won't go that far. But, elected last February to the NASD Board of Governors to represent the independent-contractor b/d industry, Simmers has some concerns, especially about new regulation (who doesn't?). In 2007, Simmers, who runs four independent b/ds owned by ING, will take on the chairman's position at the Financial Services Institute (FSI), an advocacy group representing 100 independent b/ds and more than 124,000 of their reps.

Simmers recently spoke with Registered Rep. staff writer Halah Touryalai about his multiple duties, including issues facing his firm and others like it, as well as recent attacks on the NASD's credibility as a voice for small firms.

Registered Rep.: What's the chief concern of independent firms these days?

John Simmers: I think the independent b/d focus remains on regulations that are fair and level. We don't want to see any one business benefited by NASD policies more than another business, and we want to see that investors are adequately protected. The Financial Services Institute's perspective is: Let's enforce the rules, let's not make rules by enforcement.

RR: You'll take over as chairman of FSI next year. What's your first priority?

JS: To carry the voice of the independents. We're very focused on establishing ourselves as a credible source with the NASD, the SEC and state regulators. The FSI represents the interests of the independent b/d, the independent investment advisor and the independent registered representative. We'll continue to build our membership and establish that credibility with each of those groups.

RR: Some people within those groups you mention have formed other groups — like the Financial Industry Association — because they don't think FSI represents them. They say the NASD favors big firms. What's your reaction to that?

JS: I think it's highly opinionated and gives no respect to the hard work being done for small firms. If you've correctly characterized their agenda, I don't think it gives credit to the participants on the many subcommittees and standing committees and boards that serve small firm interests at the NASD. I know the people on the committees and they are hard-working, well-intentioned individuals who have made solid contributions. I would hate to think that people believe their work is done in vain.

RR: Let's talk about your role as CEO of ING Advisors Network. What are the issues you face as an insurance-owned b/d?

JS: First, I'd say yes, we do insurance, but we also offer banking and asset management — not just insurance. Being owned by a corporation that is so prominent in the financial-services sectors enables us to draw on a tremendous amount of resources, knowledge and experience in a variety of sectors of the business and relay those benefits down to the advisor. And it's all done without any requirements or quid pro quos as it relates to ING manufactured and developed products. The open architecture of ING's advisor's network is no different than that of many of the other independent b/ds.

RR: Many small firms would say an insurance-owned b/d is hardly “independent” in the true sense of the word, and that you have conflicts of interest in representing indies. Is that fair?

JS: I guess I would challenge anyone who makes that statement to a debate. I can find conflict on any platform. Take the discount-broker platform — they select the product that goes into their mutual fund offerings. It's never 100 percent. The presence of conflict or the appearance of conflict exists in almost every financial-services institution whether you're fee-based or whether you're commission-based. It's the degrees that make the difference and it's how you disclose it and explain it to the public so that they can make choices that matter.

I'm not here to debate fiduciary versus nonfiduciary or the like, but for another b/d to allege, other than as self-serving statement, that we have a bias and they don't when it comes to the point of sale of a registered representative, I challenge that person to back that statement up.

RR: There have been multiple studies — one even by FSI — that show independents barely hanging on to profitability. What's the problem?

JS: Fees and commissions have come down as a result of competitiveness in the overall marketplace, so gross profit from a recommendation, sale or advice is smaller. At the same time, payouts have increased. We're seeing that in all segments of the industry, even at the wirehouses where the amounts that they're paying upfront for talent can exceed 100 percent. Really, it's a game of scale and efficiency. Those firms are the ones that tend to provide more comprehensive services and will reap the benefits economically and otherwise in the marketplace.

RR: Should payouts come down then?

JS: I personally haven't seen the need to do that, and I don't hear that coming from my peer group. That may apply to the smaller or medium-sized b/d, but it's not necessarily a sentiment that exists at the higher level. Based on talks with CEOs in my peer group, we see growth in our revenues and growth in our earnings over the next three years, and that wouldn't indicate that payouts have to be lowered.

RR: Is the ING advisory network profitable?

JS: Yes it is.

RR: But with so many firms not making a profit — nearly 50 percent according to many studies — consolidation can only continue. Does ING want to be a purchaser?

JS: Do I intend to be a consolidator? Yes, to a certain degree. I'm not necessarily looking for the next big deal, but I certainly am looking for opportunity and am poised to take advantage of an opportunity, such as small b/ds between $15 million of gross dealer concessions and $100 million of commissionable or fee-based revenues that are not operating efficiently and can benefit from an association with a larger organization that can bring value-added services and provide efficiency and scale. It's a win-win for the customers as well as the brokers, planners and advisors who get something positive for their businesses and practices. And for the executives, depending on where they are in their business cycle, they can either cash out or become part of the management of a stronger organization that offers them upside in any number of ways.

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