Fantastic 5

By James J. Green

September 01, 2005 at 04:00 AM

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Broker/dealer representatives are honest when it comes to evaluating their own broker/dealers, but when given anonymity, as they have been in Investment Advisor's annual Broker/Dealer of the Year balloting for the past 15 years, they can be brutally so. Take the question we ask on the B/D ballot regarding "Which other services does your broker/dealer not currently offer that you wish it did?" The answers range from the predictable–"better marketing support"–and the heartfelt–"health insurance for reps"–to the intriguing–"providing loans for practice acquisitions"–and the wistful–"user-friendly software." Then ask them, as we do, what other broker/dealers they would consider an affiliation with. The answers can be illuminating (see "Were the Grass Greener" sidebar on page 74) and even amusing, as one voter familiar with the New Jersey political scene quipped: "Goldman Sachs–They make you very rich so you can run for the Senate."

Make no mistake about it. The B/D of the Year is an important competition for many independent broker/dealers that use wins as the basis for marketing and recruitment campaigns, and losses to denigrate their opponents. This year, we realized that we could have done a better job at, of all things, communicating with our readers. We realized that our attempt to insure voters' anonymity and protect the integrity of the voting process might cause confusion and unintended consequences, so we will be disclosing more about that process and have named a fifth winner this year in a return of sorts to the earliest years of the contest, when we routinely named five winners annually.

In this anniversary year for Investment Advisor, we've become more aware of how the tides of time reveal recurring issues that must be overcome by advisors, and how important it is to advisors' success to team up with partners who can not only help them provide the necessary services to keep current clients happy but also extend their reach to attract the best kind of clients in the future. That's where a good broker/dealer can make all the difference in the world. And who better to let you know which B/Ds are best than your peers, who like you can and do vote with their feet and assets when a broker/dealer fails to meet those high partnership standards?

The good news is that the balloting reveals that the overwhelming majority of reps are quite happy, thank you very much, with their current affiliations. The better news is that the profiles of this year's winning Broker/Dealers of the Year–the Fantastic 5–reveal some of the machinery behind the success, which more often than not translates into competent, consistent management and home office staff that provides the service, technology, marketing, and compliance support that reps need to gain and sustain success.–James J. Green

DIVISION I

Geneos Wealth Management

In the space of only three years of existence, two wins

Once again, the Division I Broker/Dealer of the year is Geneos Wealth Management. In only its third year of operation, why do representatives like Geneos so much? As they told us again and again in their votes and interviews, the reps said that despite the B/D's relative youth, Geneos has very experienced, extremely professional management. They focus on compliance, offer a broad range of high-quality products, and are just plain fun to work with. Although the firm was founded only in 2002, Russell Diachok, president and CEO of Geneos, is no broker/dealer tenderfoot. He and his father, George Diachok, chairman of Geneos, started and for 20 years managed another successful broker/dealer, Multi-Financial, and sold it to ING Group in 1998.

"There's a very high level of professionalism," says Paul French, an advisor at Plott & French Financial Advisors in Radford, Virginia, who affiliated with Geneos in April. "When you call the home office in Denver, you get to speak to somebody–usually right away–and they know what they're talking about." That was not the case at his prior B/D where he'd had to wade through an automated phone system, only to get outsourced to a call center–in another country–before he could get what little help it offered. French says he now has "many, many more choices" of products, for clients who "these days leave our office with enormous grins because we have so much more to offer." He did have one regret regarding the move to Geneos: "I wish I had done it sooner."

The praise is reciprocated by Geneos management. "We are very grateful to be working with some very high-quality financial advisors. We consider it a true partnership, and here in the home office we want to support their efforts in any way we can," says Russ Diachok, who gives credit for Geneos's win to a great home office staff who "try to make it easy to do business." High payouts don't hurt either: Geneos's payouts are among the highest in the industry, at about 97% on advisory business, and 94% on standard business. "If you're going to attract good people you have to be competitive with payouts," Diachok says.

But running an award-winning firm is not without its challenges, and for Russ Diachok the most serious is the compliance environment, which he calls "unlike anything I've seen in 25 years in business." The regulatory environment is something that Geneos-affiliated representatives take seriously as well. Betsy and Craig Isaacs are a husband-and-wife team at La Jolla Wealth Management, with offices in Phoenix and San Diego, who have worked together on and off since they were married about 28 years ago. Betsy Isaacs is a registered representative and office manager; Craig Isaacs is the OSJ. One of the things they like best about Geneos is the firm's attention to compliance. "The compliance issues just keep getting more difficult–there's more and more paperwork and I know that they are very, very diligent and they take it very seriously," says Betsy Isaacs.

"We both started out as life agents many, many years ago. If you go back a long way, the insurance companies used to have a family atmosphere. You could talk with the underwriters, and you were always at conventions where you got to meet everybody–all the people that helped you get your business through. The insurance industry has changed tremendously, and I think a lot of broker/dealers have also because they're so huge, but with Geneos–it doesn't matter how big they get, they truly care about the people that are with them. They always ask for your input–'is there anything we can do differently?' They have conference calls with their OSJs on a weekly basis, so things just don't get to the point where people get agitated or irritated. You call, and you don't get voicemail or if you do, they call you right back. It's like a family business," says Betsy Isaacs, where "they just do a lot of things right."

Craig Isaacs was with Multi-Financial before the Diachoks sold that firm, and moved to Geneos when they started up. He said that Geneos will "go the extra mile to personalize all the issues that people are dealing with," and have a "How can we get this done?" attitude. Geneos has expanded its offerings to include "private placement limited partnerships. They brought on EverBank [Financial Corp, based in Jacksonville, Florida] as a relationship, which is an Internet banking capability," according to Craig Isaacs. He would like to see insurance "life settlements" added to the product mix, but there is not much else on his wish list.

In a business with a bottom-line orientation, what's the bottom line for Geneos? According to Betsy Isaacs, "they're just a lot of fun, they're great people to work with, and they're all smart." –Kathleen M. McBride

DIVISION II

Brecek & Young Advisors

Modern technology but with a time-tested attitude

Adherence to the golden rule is probably the most underrated component in the success of any business. Those who fail to treat their customers the way they would like to be treated often find themselves with no customers at all. "I've found that one of the most important things we can do as a firm is to have very strict service standards," says Roland Brecek, president and CEO of Brecek & Young Advisors, Inc. B&Y, headquartered in Folsom, California, returns to the winner's circle as Broker/Dealer of the Year in Division II; the firm had a three-year run as winner of the same division from 1999 through 2001."It's very important for our staff to understand who our customer is, and our customers are our representatives. It's up to us to make sure the customers are getting the kind of service that they expect so that they can be successful."

Based on the marks the firm received in this year's poll, the firm's representatives must indeed be successful. More than 50% of Brecek & Young's reps rated the firm as best in all 14 categories, and another 15% rated it tops in all but one or two areas.

Although he says that he doesn't try to follow what other broker/dealers are doing, Brecek thinks that his success in recruiting high-producing reps away from other firms is partially attributable to his emphasis on high service standards and a wide range of sales support. For every eight representatives there is a full-time staffer at the company's headquarters, and for every 50 representatives there's a Series 24 licensed sales manager, plus an internal sales manager to back up those managers. "Those managers have been in the field, they've sold before, and if a representative knows what to sell and wants to be left alone, we'll do that," says Brecek, returning to his give-the-customer-what-she-wants theme. He quickly adds, however, that "if the representative is looking for somebody to help them with illustrations or is looking for product suggestions or service suggestions, then I've got somebody here that they know they can count on."

Another area where Brecek & Young tries to stand apart from other broker/dealers is in the amount of time and effort put into developing fee-based expertise. Representatives are free to choose their own business model, whether it's commission-based, fee-based, or a combination of the two. "What I've been trying to teach our representatives is that when they're working with a customer, they need to understand what the customer's looking for," Brecek says. "Some customers would prefer to pay a commission and we've got that outlet, while other customers would prefer to trade more frequently and not pay ticket charges. Some customers would prefer to have an active investment manager and investment advisor that's making their investment decisions for them, and the representative has that outlet as well." There's another benefit to taking this approach, he says: customer retention. "I think that if you're working with customers and you're able to diagnose their needs, then provide them with what they want, you're more likely to retain those customers."

One of the biggest issues facing all financial services firms these days is the increased burden of compliance. Brecek says that while he has had to beef up his staffing in this area and make a substantial investment in new technology, he's countered that by attracting higher-producing reps. "The normal representative that joins our firm is doing in excess of $100,000 in commissions, whereas in the past we were accepting representatives that were producing less than that," he says. "It's turning out to be a profitable model for us."

As the firm continues to grow and meet its compliance obligations, Brecek feels that technology will allow him to change the rep-to-home-office-staff ratio from 1:8 to 1:10 or even 1:12. Using Web-based systems, the firm's reps have access to programs that can help fill out the myriad forms required for new accounts and others to help consolidate their statements, as well as programs for research and compliance. "We've got financial planning programs that coordinate with those particular programs so that the representatives don't have to re-input the information," he says.

Brecek & Young was founded in 1992 as an RIA and in 1996 added the broker/dealer component. Although the two concepts initially operated separately, a merger two years ago brought everything together. (The Young in the firm's name belongs to Hal Young, who serves as VP of strategic investments and spends much of his time visiting representatives to provide sales support.)

"Our goal is not to be the biggest firm in the world," Brecek explains. "Our goal is to grow at a reasonable rate, because we want to keep a family feel with the representatives."

Currently the firm is adding approximately 10 new representatives a month while simultaneously weeding out some of its lower-producing representatives. "We're basically growing at a net five representatives a month, and our five-year strategic plan is to keep up that level of growth."

If Brecek & Young continues growing at that pace, the firm should more than double in size over the next five years, moving it into Division III (reserved for those firms with between 500 and 999 reps) in either 2008 or 2009, but the prospect fazes Brecek not in the least. "We've got the infrastructure in place to support that and I've got the office space as well," he says. By providing the right combination of cutting-edge technology and a culture built on good customer service, it's likely that Brecek & Young will continue to be showered with accolades by its reps in the years to come.–Robert F. Keane

2005 Broker/Dealers of the Year is continued on the next page

DIVISION III

NEXT Financial Group

Professionally run but treated personally in a fast-growing firm

When Thomas Schmidt opted to leave his large broker/dealer, he knew he needed a new B/D that provided the same back-office support larger broker/dealers offer, but he wanted the freedom to manage his business as he saw fit. Running Heritage Financial Group, a one-man operation in Houston, Schmidt felt NEXT Financial Group Inc. offered exactly what he was looking for.

"The organization is run very professionally and personally," Schmidt says. "I have a small shop and I am not one of their superstars, but I don't feel as if I am treated any different. I get all the same support and opportunities as if I were a top producer and that is important to me."

Having been with NEXT now for more than three years, Schmidt says, nothing has changed. "It's important to look at the history of the business," he continues. "Even though NEXT has grown, they haven't forgotten what got them started in the first place," he says. "Their concern and efforts to support [their reps] remain priorities, and they have never sacrificed their standards to achieve larger success."

NEXT Financial Group Inc. of Houston, Texas, has won broker/dealer of the year honors for the fifth year in a row, exceeded all of President Jeff Auld's growth expectations, and continued to maintain a high level of customer support and service without, says Auld, compromising their values. Most of all, it has kept its reps happy, as shown by the sky-high rankings it received in this year's B/D of the Year balloting.

NEXT Financial has in the last five years grown from a mere 100 or so active producing reps to nearly 675 total reps this year. In 2004 its revenues reached $38 million and in 2005 NEXT is on track to earn $50 million. "We are excited about the fact that we are growing," Auld says. That growth, he continues, is even more rewarding because management's commitment to its reps hasn't wavered. "I see our biggest challenge as maintaining the best service to our reps in a firm growing so rapidly. It is getting more difficult to provide personal service for 600 reps than it was when we had 200. That is one of the reasons why winning this year is so exciting for me," he says. "This is an indication that we are still doing what we should be doing."

Though the overall number of NEXT reps continues to grow, a third of all reps still sustain ownership in the firm. "NEXT was created so reps could maintain control of their broker/dealer," Auld continues. "That keeps me uniquely focused on their priorities."

Todd Giere, president of Giere Investment Services in Brooklyn Park, Minnesota, joined NEXT when the company got started in 2000. "I switched because I liked the initial vision of the firm," he recalls, and that hasn't changed. "In today's environment you need to have a company with strong ethics and the courage to do what's right and not what's profitable. I feel confident that the directors and senior staff have ethics in the highest regard and I trust their judgment."

Proud of the fact that NEXT does not have any proprietary products or quarterly earnings requirements, Auld says he can focus 100% of his time toward running a profitable business that meets the needs of his representatives. He even answers to a board of directors who are all active producing reps. "In every decision I make, from procedures to products, the first thing I have to think about is how this will affect the reps," Auld says.

After 15 years in the industry, Susan Bradley, registered office manager at Saline and Associates, LLC in Mt. Laurel, New Jersey, found her firm was tired of not having a voice with their larger broker/dealer. "I had no say," she remembers. "The larger firms want to push the proprietary products, which may or may not be acceptable for clients." For Bradley, the most frustrating part of her former B/D was when she called the back office for support, she was always dealing with a different person. "With NEXT, I've met probably 99% of its home office staff and everyone there is incredible," she says. "We are a family. I have everyone's phone number, I get returned calls immediately, and their compliance department is great."

Those were just a few of the positives that made her transition to NEXT early this year "totally painless," says Bradley. "NEXT has a transitions coordinator who walks you through everything. I think I speak with them on a daily basis," she laughingly admits. "I would like to see them grow, especially if I am going to be a stockholder, but I don't want to see them become a major powerhouse. NEXT has accountability, and the best thing about being a part owner is we get to decide how large the firm becomes."

In 2004 Auld was committed to increasing his back-office staff and implementing a new imaging system. "We have made significant investments in new technology," he says. NEXT has increased the server size in its office and installed a backup server. "With the new imaging system, reps can submit documents to us electronically, can input client information online, and slowly we are decreasing the amount of paper we produce. This is all to make it easier for our reps."

In 2004 and for the remainder of 2005, Auld says he has focused his efforts on training his staff and recognizing the work of his representatives, and less on increasing the size of the firm. "Our new HR person is beginning to give customer service training to our back-office employees," he explains. "It is something that we focus on and recognize."

Each month, Auld gives out a "champion service" award for outstanding customer service as well as a "most valuable team" award to those who receive the greatest feedback from their peers.

Continuing to improve technology and begin working with financial institutions are NEXT's objectives for 2006. But more importantly, Auld is focusing on improving NEXT as a whole. "I expect gross revenues to reach $70 million and total rep count will break 700 around the first of the year," he says. "But we have recently become less focused on the number of reps and more focused on the amount of production we are adding."–Megan F. Robert

DIVISION IV

FSC Securities

The benefits of size, with the freedom to act independently

During his 10 years as a rep at FSC Securities, Doug Loftus has watched the Atlanta-based broker/dealer get gobbled up by two large financial services firms, SunAmerica and then AIG. But that suits him just fine, he says, because now he benefits not only from the hands-on, family-like atmosphere at FSC, but is able to tap the scads of resources available through AIG. "We get the benefits of AIG's size" while still being able to function as an independent business, says Loftus, an advisor with Spectrum Financial Advisors in Cincinnati. "AIG doesn't get in our way."

Throughout her more than 20 years as an FSC rep, Kim Ciccarelli Kantor admits that she's "considered other options," but has stayed with FSC because she's "never found the same type of culture" at other broker/dealers. "FSC does a very good job of serving the independent advisor," says Kantor, with Ciccarelli Advisory Services Inc. in Naples, Florida. In an industry that's constantly changing, "FSC has done a good job of communicating" how those changes affect advisors, and helps advisors "determine how best to apply [those changes] to their practices and clients," she says.

Like Kantor, Jim Herrington has stuck with FSC for more than two decades primarily because of FSC's culture. "You're treated like family," he says. Herrington also enjoys the relationships he's forged with FSC employees in the home office, and with his associates in the field. "Many of us have been [with FSC] for 15 or 20 years." While Herrington is also impressed with the B/D's ability to adapt to changes in the industry, he's waiting for the day FSC provides group health coverage for its field force.

FSC President Joby Gruber boasts that the B/D "has been very successful" at retaining employees at the home office–the average employee has been there at least eight years–and in "creating strong relationships" with its field force. FSC's loyal stable of reps has recognized the broker/dealer as Broker/Dealer of the Year eight times, including three out of the last four years.

In Gruber's mind, the key to a successful relationship between a broker/dealer and its reps can be summed up in one word: Listening. "We pride ourselves on the fact that we do a very good job listening to what [reps'] issues are," Gruber says. Gruber and other senior management get feedback from reps via a Yahoo! instant messaging service that allows reps to voice their questions and complaints, as well as through in-person visits to reps' offices. "I spend a decent amount of my time on the road in producer offices, talking to reps and their staffs," Gruber says. Since the staff members are involved in the day-to-day operations, Gruber likes to gauge how often the rep is in their hair. "If they're in it too much, it means the producer is not out in front of the clients enough," he says. Ideally, reps should spend 80% of their time with clients and 20% running the business, he says. If that's not happening, "we ask how we can help get them there."

Indeed, Loftus says he appreciates the fact that "FSC is always evaluating what they can do to make our businesses run more smoothly and productively." The B/D does this by not only anticipating regulatory changes, he says, but by being "proactive" from a compliance standpoint. Kantor agrees. "Compliance is one of the most difficult areas to keep your hands on, and it's hard to find clarity," she says. "FSC tries its very best to find clarity and be able to offer it in a way that the advisor understands what needs to be done–how to take the next step."

To help its 1,700 reps save money, FSC can leverage AIG's resources and provide them with discounts at various stores. For instance, AIG negotiated a deal with CareerBuilder, an online employment service, in which reps are charged only $60 to place an ad. The normal rate is $360 for one ad, says Loftus, noting that he recently hired two new staff members who responded to an ad he placed on CareerBuilder.

To maintain its competitive edge, and keep its reps happy, Gruber says FSC plans to remain "an entrepreneurial firm in a corporate wrapper." FSC is now "pushing for AIG to help us in the creative side of product placement" so that by the end of this year or beginning of 2006, FSC can provide reps with products to serve the high-net-worth arena, he says. The typical rep client has about $2 million in net worth, he says, "so we're going to try and provide products to help them attract $5 million and $8 million clients."–Melanie Waddell

Special Award

Commonwealth Financial Network

Helping its reps to define–and deliver–true wealth management

The broker/dealer of the year balloting is meant to gauge reps' assessment of their own B/D, but we do ask voters to share with us which other broker/dealer they'd consider affiliating with, and Commonwealth Financial Network has consistently ranked high in that tally. While some would chose Commonwealth because, they say, of its good technology and reputation for attracting, then keeping happy, good representatives, one rep (from one of the other winning broker/dealers, by chance) succinctly put forth his reasons. He'd pick Commonwealth, he wrote, because of its "high integrity, high touch, and reputation."

More to the point, there's another constituency where Commonwealth scores high, and that's with its own reps. This year, Investment Advisor declared a fifth Broker/Dealer of the Year to reflect the sterling ratings its reps gave Commonwealth, and the fact that Commonwealth found itself on the cusp between Divisions III and IV regarding its number of producing reps when the balloting took place this year (see the "Why Five?" sidebar on page 80). Commonwealth's reputation for repcentricity is certainly evident in its approach to technology. Darren Tedesco, who helps run the broker/dealer's technology platform, points out that by design the firm doesn't mandate the use of specific financial planning applications, for instance–the platform will accommodate just about every piece of advisor-run software out there. Or maybe the approach starts at the top. If you ask CEO Joe Deitch to share the key to Commonwealth's success, he says that "Commonwealth's business plan, ultimately, is to attract and retain successful advisors–to help them grow." It can do so by building and maintaining a system, he says, that allows advisors to "maximize their time and talent, which takes things off their desks and their staff's desks, and to help educate the staff."

One critical element in that system is the Commonwealth Wealth Management team. This interdisciplinary group that lives at the B/D's Waltham, Massachusetts, headquarters is the one point of contact available to all Commonwealth reps, providing direct advice in specific areas from the team and other internal Commonwealth sources, access to a comprehensive database of information on the Web presented in a "molecular map" form displaying the myriad areas that affect each other in planning, and entree to other Commonwealth advisors and outside experts from the broker/dealer's strategic partners.

Tere D'Amato, a CFP, CLU, and ChFC who is director of advanced planning, wealth management, at Commonwealth, said a Commonwealth rep told her that before the establishment of the team, he could call the home office with a thorny problem, but if he called "someone in the retirement department, I'd get a retirement solution. If I called someone in the investment department, I'd get an investment solution." The team presents a comprehensive, multidisciplinary review of a problem, D'Amato says, with "more of a financial planning point of view." So reps "get a balanced point of view that can touch on all the different aspects [of a particular plan or problem]–that's why we call it our molecular map," referring to a graphic representation of all the facets of financial planning resembling a molecule's structure.

One Commonwealth rep who has used the map to help him find his way is Christopher Fraga, an attorney and CFP with separate but complementary practices in Massachusetts and Florida who has been affiliated with the broker/dealer since 1989. He's used the team, he says, to help him sharpen his marketing focus, since by using it with clients he's "able to present this holistic approach" to planning. "What they've done is tied together all the pieces that relate to somebody's financial life," he says. "From my own experience," he adds, "the one thing I hear consistently from clients is that they like the fact that it's a comprehensive approach."

The platform can also "allow an advisor to target higher-net-worth clients," Fraga says, "since it gives them the confidence to have backup, to have support, even though they may not have individual expertise in all the subject matters" involved in comprehensive financial planning.

Deitch has a refreshing approach to the concept of wealth management. "The term started to gain traction a few years back," Deitch says, " but it's amusing, because wealth management is nothing more than financial planning." But financial planning done properly " has always been an enormously labor-intensive process," Deitch points out. "What technology allows you to do now is to integrate the various aspects of a plan and make it available to your client. It speeds things up and integrates the whole process."

While Deitch believes the heyday of investment management has waned–"Not only have fees and commissions come down, but it's very simple for the investor to leave one advisor and go to another"–he argues that in the wealth management model that's not the case, since "anyone who has any money needs to maximize it, and to coordinate things as much as possible." For those folks, "to have a trusted advisor is just wonderful."

Commonwealth doesn't charge for the wealth management service to its reps, and when asked if it constitutes a long-term investment for the broker/dealer, Deitch replies: "Our specific market niche is to be the high-end provider for the high-end advisor. To claim and retain our standing in the industry, we need to constantly raise the bar and get better. So, yes, it's an investment in the future, it's one of a hundred investments, and next year we'll make a hundred more. There's no end to it. That's good; we like it that way." Apparently, so do Commonwealth's reps.–James J. Green

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