Cambridge Investment Research, Inc. takes pride in being an independent broker/dealer. While other firms have sold out to huge financial services firms like AIG and ING Group over the last few years, Cambridge is determined to go it alone.
The Fairfield, Iowa-based firm's "independent vision" continues to serve its 600 advisors well, says Eric Schwartz, president and CEO. "It's our job to make our world fit to [advisors'], not make their world fit to ours," he says, "and to figure out what it is that [advisors] need and want." Schwartz believes independent B/D firms that have been swallowed up by insurers and banks have drifted from the practice of putting advisors first. These firms no longer view the advisor as a "customer," he says. "When a firm is bought by another company, the management of that company does not understand the mind-set of an independent advisor." The acquiring firm's primary objective, he says, "is not to service the advisor, it's to get the advisor to do what they want–sell more insurance products, [or push] a fee-based program that's more profitable for the B/D."
Jeanne Robinson, a CFP with Marshall Financial Group in Doylestown, Pennsylvania, knows all too well the differences between an independent B/D and one that's been gobbled up by another firm. There's a distinct difference, she says, between a "large corporation catering to the profitability of a shareholder versus a small one viewing the advisor as a client." Her advisory firm switched from FSC Securities in Atlanta to Cambridge two years ago after FSC was acquired by AIG. "All of a sudden we came under the umbrella of a very large, insurance-based organization," Robinson says. Her firm was not only less than thrilled with the new culture, but found it was spending an inordinate amount of time keeping pace with new technology. "We were constantly learning and relearning technology as the broker/dealer rolled out the most recent marvel from the back office," she says. "When you have a large group of reps with very different types of practices, the technology is designed to do everything for everybody. A lot of times that becomes problematic for a firm that has a very focused practice." Cambridge, on the other hand, offers technology that suits a particular advisor's needs, she says.
Karen Morstad, director of marketing for AIG Advisor Group, which represents the six broker/dealers within its B/D network, says Marshall Financial's dissatisfaction with the technology products and cultural environment following FSC's merger with AIG is "the exception to the rule. We've had market growth at some of the broker/dealers, especially during these [turbulent] times, due to the positioning of the technology," she says.
Still, Robinson says her firm knew it was time to leave FSC when it started "losing [its] independence as an advisor." The handwriting was on the wall that Marshall Financial would soon be encouraged to push proprietary products, she says. But Larry Papike, president of Cross Search, a broker/dealer recruiting firm in San Diego, California, says that while firms like AIG and ING want advisors to promote their products, independent advisors are not "penalized" if they don't. Sure, these financial services firms that have acquired B/D firms are banking on reps selling their products, he says, "but it hasn't happened to a great degree." Besides, advisors "are independent contractors," he notes.
When it comes to recruiting advisors in today's bear market, it's crucial that broker/dealers provide products and services that outshine those offered by their competitors. Schwartz believes Cambridge's focus on fees is contributing to the firm's unprecedented growth. Over the last 10 years, the B/D has gone from a meager $5,000 in revenues to a whopping $70 million in projected revenues this year. "We have the highest percentage of fee-based business of any of the [larger] independent B/Ds," he says, noting that 37% to 40% of Cambridge's revenue comes from fees. Cambridge also has "an unusually large percentage of reps that are active in the fee side"–approximately 78%–"and an unusually large" 32% that have their own RIA firm.
Robinson is impressed that Cambridge is willing to "support a fee-only planner," something she says is often unheard of in the B/D world. "Cambridge embraces all types of revenue generation," she says. "They will work with an advisor if they feel that advisor is a quality person regardless if they are commission-only or fee-only."
Schwartz says Cambridge's open architecture allows advisors to manage money on a dozen brokerage platforms, a service not found at even the largest and best-run independent B/Ds like LPL, Raymond James, and Commonwealth Financial. "On the fee side, we offer many different platforms on which the advisor can work," he says. Unlike the aforementioned firms, Cambridge clears through two firms, Fidelity's National Financial and Pershing, Schwartz says. Cambridge also has "a very large amount of money at Schwab, Waterhouse," and at least 10 other firms, he says. At LPL, Raymond James, and Commonwealth, if the rep is managing money, "the rep has to use their platform."
