Broker-Dealers

Gross revenue for top 25 indie firms crosses $10B mark

For the second consecutive year, the largest 25 independent-contractor broker-dealers saw top-line growth slow, even though it still was up by double digits.

NEW YORK — For the second consecutive year, the largest 25 independent-contractor broker-dealers saw top-line growth slow, even though it still was up by double digits.
In the face of a cutthroat recruiting environment, the top 25 firms tracked by InvestmentNews reached $10.68 billion in gross revenue last year, an increase of 16.6% over the level in 2005.
But as a group, the largest independent broker-dealers have seen gross revenue growth stall somewhat since 2004, a banner year, when the top 25 firms collectively increased their gross revenue by 21%. In 2005, the 25 largest independent firms increased revenue by 18.8%.
Recruiting, the lifeblood of the brokerage industry, is getting only more ferocious, industry executives, recruiters and analysts said.
More recruiters are on the hunt for representatives than ever before, and the cost of switching firms is rising, sources said, sometimes creating another impediment.

As a result, some firms that never have offered significant upfront money to registered reps and financial advisers as part of a recruiting package are now doing so, and select firms will offer 40% to 50% of a broker’s fees and commissions over the previous year.
“There’s a lot of pressure on recruiting,” said Dennis Gallant, president of Gallant Distribution Consulting of Sherborn, Mass. One key problem is that wirehouses and custodians for registered investment advisers — along with independent-contractor broker-dealers — all want the same kind of rep, he noted.
Shrinking pool
“There’s high demand for the older adviser who does fees,” Mr. Gallant said. “But the number of candidates is shrinking.”
But some are optimistic about the recruiting opportunities.
“It’s a wonderful time to be recruiting,” said M. Shawn Dreffein, president and chief executive of National Planning Corp. of Santa Monica, Calif., and National Planning Holdings Inc., a broker-dealer network. “The number of firms is contracting.”
LPL Financial Services Inc. of Boston and San Diego once again led the industry with $1.7 billion in gross revenue last year, put-ting even more distance between it and its competition.
Last year, LPL grossed $600 million more in revenue than its next largest competitor, AIG Advisor Group Inc. of New York, which reported $1.1 billion in gross revenue. In 2005, LPL out-grossed the network of AIG broker-dealers by $467 million.
And LPL is only going to get substantially bigger, said Mark Casady, its chairman and chief executive.
The firm’s 2006 gross revenue figure doesn’t include the January acquisition of UVEST Financial Services Inc. of Charlotte, N.C., and the pending acquisition of three Pacific Life Insurance Co. broker-dealers — Associated Securities Corp. of Los Angeles, Mutual Service Corp. of West Palm Beach, Fla., and Waterstone Financial Group of Itasca, Ill. — announced last month. Together, those four firms generated $510 million in gross revenue last year.
LPL at the moment isn’t in discussions with other broker-dealers about acquisitions, Mr. Casady said.
Some changes were made to the InvestmentNews list of top independent-contractor broker-dealers this year, so the comparison of year-over-year information isn’t precise.
Lincoln Financial Advisors Corp. of Fort Wayne, Ind., didn’t report its data, and Pacific Select Group LLC of Newport Beach, Calif., didn’t report its group data, instead providing information for its individual companies.
Pacific Select’s parent, Pacific Life, had been the parent of the three broker-dealers LPL bought last month.
Other changes to the list included the addition of three broker-dealers that reported data for the first time. They are AXA Advisors LLC of New York; Genworth Financial Securities Corp. of Schaumburg, Ill.; and Wachovia Securities Financial Network LLC of Richmond, Va.
In addition, Advanced Equities Financial Corp., for the first time in this survey, grouped together two of its broker-dealers, FFP Securities Inc. of Chesterfield, Mo., and First Allied Securities Inc. of San Diego.
Better training
Meanwhile, with recruiting so difficult, many independent broker-dealers are turning to better training of their current advisers, executives said.
Along with recruiting and acquisitions, broker-dealers need to emphasize training and retention of advisers, Mr. Gallant said.
“That’s the third leg that hasn’t developed yet,” he added.
Top independent-contractor broker-dealers, however, are starting to throw resources at the training of advisers.
GunnAllen Financial Inc. of Tampa, Fla., this year will run regional conferences along with its national conference. The goal is to help advisers “reach the next level,” said David Levine, Gunn-Allen’s national sales manager.
The firm wants to “get the top reps together and let them talk to each other,” he said. “Advisers want to hear what the top reps are doing.”
Cambridge Investment Research Inc. of Fairfield, Iowa, has introduced several coaching programs in partnership with Russell Investment Group of Tacoma, Wash., said Cambridge’s chief executive Eric Schwartz.
The Advanced Equities broker-dealers are using the recent acquisition of an adviser that focuses on doctors and physicians, Greenbook Financial Services Inc. of San Diego, to expand its offerings to its reps and advisers, said chief operating officer Joel Marks.
Chicago-based Advanced Equities intends to run more conferences for its advisers and, in June, will launch a new training program, he said.
“You’ve gotta be willing to invest in your advisers,” Mr. Marks said.
Other firms are revamping their technology to help advisers.
ING Advisors Network Inc. of Atlanta has integrated Envestnet, an asset management program, with its clearing firm, Pershing LLC of Jersey City, N.J.
And ING Advisors Network also is seeing an increase in popularity for courses for reps who are looking to increase their business as RIAs, said Randall Ciccati, president of the network.
Although some broker-dealers are stressing training, others are paying more attention to their affiliated reps’ and advisers’ needs.
Management at Raymond James Financial Services Inc. of St. Petersburg, Fla., is embarking on a listening tour of branch offices, said Richard G. Averitt III, the firm’s chairman and chief executive.
“We’re going to ask, ‘How can we make it easier to do business with us?’” he said. “We’re starting right away.”
Taking the opposite tactic, Commonwealth Financial Network of Waltham, Mass., is inviting reps and their staff members to the home office “for a re-education on Commonwealth,” said managing principal John Rooney, who works out of San Diego.
It also is doubling the length of its wealth management program to three days, he added.
Hitting the road
Wachovia Securities Financial Network, the independent-contractor unit of Wachovia Securities LLC, is increasing its training in the field as well as the home office, said its chief executive John G. Peluso Jr.
The firm has 13 spring “growth road shows” scheduled for the advisers in its various business platforms, as well as a conference later this year in Richmond, he said.
“The training is more intense than before,” said Joseph B. “Joby” Gruber, chief executive of Advantage Capital Corp. and FSC Securities Corp., both of Atlanta and part of the AIG Advisor Group.
For example, advisers have been able
to offer clients mortgages, but the broker-dealer never focused on overall “liability management,” he said.
NFP Securities Inc. of Austin, Texas, sees an opportunity to train advisers in an area that may be ripe for growth, said Jeff Montgomery, the firm’s chief executive. For example, NFP recently helped a $1 million producer who specialized in benefits and investments expand into insurance.
“There’s a lot of requests to go into a third line of business,” Mr. Montgomery said.