Indie broker-dealers are identifying new talent

The following is an edited transcript of the NextGen Channel Spotlight session on independent broker-dealers. The panelists were Larry Roth, president and chief executive of Advisor Group, and Amy Webber, president and chief operating officer of Cambridge Investment Research Inc. The session was moderated by Derek Klock, assistant professor of practice in the department of finance at Virginia Tech’s Pamplin College of Business.

Mr. Klock: Advisor Group is one of the largest networks of independent broker-dealers in the U.S. With the recent addition of Woodbury Financial [Services Inc.] to FSC Securities Corp., Royal Alliance Associates Inc. and SagePoint Financial Inc., Larry manages more than 800 employees who serve the needs of about 6,000 total licensed advisers.

Mr. Roth: The independent adviser space has grown very dramatically over the last 20 years or so, and it’s done that, frankly, because many, many more people — today more than ever — need help planning for their retirement. So a lot of our advisers spend time counseling people on growing their retirement nest egg, so to speak, and now that more and more people are retiring, our advisers are helping them with income strategies, etc., and estate planning.

One of the reasons I’m excited about talking to you in particular is that as the baby boomers have aged, so has the adviser population, and many of you are familiar with this. And we’ve gotten to a point where the need for advice has never been greater, and because of the aging population of advisers, the need for new advisers has also never been greater. And Amy will probably share this with you as it relates to her firm, but specifically in our firm, we have more advisers in the 70-years-of-age-plus range than we have in the 30-years-and-less range. And with the great training that you’ve had at your school and the certifications that you’re earning, you’re going to be entering this market at a really, really wonderful time.

PRIVATE BUSINESS OWNERS

Our advisers are private business owners; they’re entrepreneurs. They use us for training and education and technology and product support, etc. Their practices are growing at a very, very rapid rate, and they’re in a better position to grow than ever, depending on the kind of business model they have. But without getting into too much detail, I would just say that if you were to enter this market, either working at one of the home offices of our firms or any of the other firms that you’re aware of, you will learn a lot about how to serve financial advisers and how they run their businesses. So it’s a little bit like entering a consulting firm or an accounting firm, where you’re actually not running a business but you certainly are learning a lot about running a business.

PRACTICE-SPECIFIC

If you were to enter our market by joining one of our existing practices, then the benefit that you’ll derive from that will really be a function of the practice you join — the niche that they operate in, really the owner of that business and their personality and their skills. You’d want to make sure you found somebody that you could learn from and then at a later date perhaps buy their business or start your own business.

We’re in a business where there are fewer and fewer larger firms. I would urge you, if you do decide to get involved in the independent channel, to pick a partner or a provider of services or an employer that you’re confident can continue to invest and grow their business. And if you pick the right one, I think you’re going to be in for a really, really great career.

Mr. Klock: Also with us today is Amy Webber of Cambridge. Her personal interests lie in continually refining the independent-broker-dealer model to best support the next generation of independent advisers, including creating innovative programs such as the Cambridge Source outsourcing program and the Cambridge Next Step internship program, which I’m sure she will be highlighting for us later. Amy, I’d like you to tell the audience a little bit more about Cambridge Investment Research.

Ms. Webber: We currently have over 2,200 independent-contractor rep-advisers. Those rep-advisers in the independent space actually choose who to partner with, as Larry was talking about just a minute ago.

Most of our advisers focus their business on providing holistic financial planning, and they provide that planning assistance to mainstream America. In particular, they use a combination of products and services in both a fee and commission compensation structure. We believe that our model in the independent space provides the greatest level of flexibility to an independent planner who doesn’t wish to be an employee but actually wants to be a business owner.

I’ve been with Cambridge for 15 years now, and when I started, we had 22 employees. We now have almost 500. I personally started within our channel when I was just 18 years old, so I have literally grown up in the independent space, and truly, one of my passions is to help others — such as many of you — identify that this is the career for you and help foster your passion, as well, about our segment.

There are significant career opportunities both as a client-facing planner as well as within a firm such as Cambridge, where you can serve those who serve others. Let me talk a little bit about our commitment to developing new advisers, specifically.

LONG HAUL

Cambridge — and hopefully many other broker-dealers — is in this for the long haul. So we’re committed to doing what we can to support our advisers in building a successful long-term business continuity plan. And again, as Larry touched on, that includes the need for identifying and developing those of you that have the desire to be the next generation in our space. The clients truly do need you.

Our efforts here started with a formal full-blown internship program we call the Next Step. It includes opportunities for roles both within our firm at the corporate level and through client-facing residencies with some of our advisers.

The leaders in the independent planning firms that are associated with broker-dealers such as Cambridge and [Advisor Group] are extremely cautious in whom they align with to serve their clients. They realize that they aren’t going to live forever. They want to find somebody whose core values match up to theirs to take over their business and in particular take care of their clients.

But getting in early and establishing a strong level of trust is really key. So being a part of the succession plan with a firm like that, it’s important that you have synergy, and, again, getting in early is a good way for you to figure out if our channel, and in particular the opportunities that present themselves to you, are the right ones for you — whether that’s on the client-facing side or from a corporate perspective.

Future generations of investors, those clients who perhaps don’t have a tremendous amount of money to invest today but are your age, they’re going to demand very different things than the traditional advice model, and independence is still going to continue to play a very important role and remain very relevant. I really do believe personally that the successful business of the future is team-based, and it’s extremely generationally and gender-diverse. So there’s lots of opportunity for you as you consider this as a career.

COMPARE AND CONTRAST

Mr. Klock: We will try and get to as many questions as possible. I’d like to start with a very popular question, and this is to both Larry and Amy. Could you offer a comparison and contrast of the independent-broker-dealer channel to both or either the registered investment adviser or wirehouse models? Larry?

Mr. Roth: I’ll start with the wirehouse comparison, and Amy will be a great person to talk about RIAs, because [Cambridge was] one of the early entrants into the fee side of the business.

“Wirehouse” is terminology that refers to some of the big firms that have been around a long time, such as Merrill Lynch and Morgan Stanley and JPMorgan, etc. Those firms are not as active as they used to be, but historically, they’re great firms to come to your campus and recruit you right out of school. They will put you in a training program, generally pay some sort of a draw or a salary for some specific period of time while you learn the business, and hopefully partner you up with other professionals who are learning at the same time so that you can build confidence and start building a client base.

In the wirehouses’ early years, they were really the main place that you would start your career in our business. That’s changed dramatically, as you’ve already heard. But the benefits, I would say, are good training, recognition of the firm name if you happen to pull out a business card to talk to your aunt or uncle about what you do. And over time, what we’re seeing is, many of the advisers who started in that channel are migrating into the independent channel.

MORE SIMILARITIES

Ms. Webber: As far as [comparing and contrasting] the RIA channel and the independent model, I would actually say that there are more similarities, perhaps, than there are differences. The fundamental technical difference tends to be how the planner is compensated and how clients are charged based on their relationship with the planner. So with an RIA, fundamentally 100% of the compensation is fee-based — typically either a financial planning fee or an asset management fee. Even if you’re leveraging some sort of a third-party asset manager, you’re still being paid and compensated through a fee-based mechanism.

On the independent side, an adviser has the freedom to choose a product that may actually have a commission instead of just the fee-based side, so it offers a combination of fees and commissions, which is, we believe, much more flexible. Very rarely does one particular client perhaps only have a need for a particular type of product and service, and by engaging in the independent-broker-dealer space, you do have the ability and the flexibility and a very high level of objectivity as it relates to how and what types of services you’re providing your clients, and what types of products.

I would say the true value proposition of the independent channel is that it attracts highly entrepreneurial independent business owners who are empowered to choose their own model and the way in which they interact with their clients.

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