June Financial-Planning.com

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1 June 010 Financial-Planning.com 010 THE BIGGEST, FASTEST GROWING INDEPENDENT BROKER-DEALERS

2 Tale of a Tough Year What the numbers show: A dramatic seven-month stock market rally was not enough to help most Top 50 broker-dealers counter the aftershocks of the financial crisis. By Paul Menchaca

3 Last June, when we published our survey results, many of the broker-dealer executives we spoke to said they were navigating the tumultuous economic downturn by renewing their commitment to building their firms. This meant investing in services like technology, recruitment and the expansion of their fee platform. Although few broker-dealer executives were anticipating significant growth in the near term, they were looking to capitalize on the inevitable economic rebound. By most (but certainly not all) indicators, the recovery is now in motion. But for most of the firms in Financial Planning s 5th Annual Independent Broker- Dealer Survey, it came too late to show up in the survey. The wait for growth continues. This year s report, which tallies 009 s performance, also documents companies inward view during fallow times. Although the dramatic seven-month stock market rally in 009 certainly helped keep year-end revenues from plummeting too far, the overall survey results for the 81 participating firms down from last year s record of 91 are less than impressive. In fact, only three firms in our FP50 the 50 largest independent brokerdealers, ranked by total revenues reported positive revenue growth from 008 to 009. Compare that with last year (which reported B-Ds 008 results), when 11 firms in the Top 50 had positive growth. Among the 50, Cambridge Investment Research led the way with a modest 3.% revenue expansion, followed by Invest Financial (3.0%) and National Planning (1.3%). Meanwhile, LPL Financial s reign at the top of our FP50 list of total revenues shows no signs of wavering. But the leader board did welcome a new entrant: Ameriprise Financial Services (which had declined participation in previous years) debuted in the survey at No., knocking Raymond James Financial Services down to third in total revenues. AXA Advisors and Commonwealth Financial Network rounded out the top five. IT S UP AND IT S GOOD 009 biggest revenue gainers 3.% Cambridge Investment Research TOUGH TIMES 009 biggest revenue losers SagePoint Financial 38.5% SHEDDING REPS Change in total reps 3.0% Invest Financial Princor Financial Services 37.0% 1.3% National Planning ING Financial Partners 5.9%,757 fewer reps F % PA 0 No Wow Factor Truth be told, there aren t many numbers in this year s survey that jump out at you. LPL Financial outpaced everyone again, with revenues just under $.6 billion. It s an impressive figure for sure, but with the addition of Ameriprise to the survey ($ billion in revenues), LPL s dominance looks a little less overwhelming. To put this in perspective: In last year s survey, LPL more than doubled the revenues of Raymond James, its closest rival. Raymond James finished 009 with $851 million in revenues, AXA Advisors netted $491 million and Commonwealth had $488 million. Securities America ($41 million in total revenues) fell out of the top five this year. Meanwhile, Investment Centers of America made the biggest leap in our rankings, moving up 11 spots to 45th on our list. Securian had the biggest drop, falling 11 spots to 34th. It s not that these revenue totals are bad or that they fail to impress. It s just that when the Top 10 list in terms of revenue WHERE THE MONEY WENT 009 change in commission revenues 19.3% 13.6% 8.3% Stocks Alternatives Annuities Bonds 4.6% S 0

4 growth actually includes seven firms whose revenues shrank, it s a telling sign of how challenging the year was for independent broker-dealers. Besides Cambridge, Invest and National Planning, the top five in growth this year included National Securities (-0.3%) and Next Financial and LPL, which both finished at -0.8%. The biggest revenue losers in the FP50 were SagePoint Financial (-38.5%), Princor Financial Services (-37%) and ING Financial Partners (-5.9%). All of this is a far cry from the 009 survey, when five FP50 firms experienced double-digit growth. It s an even bigger drop-off from 008 s edition in which none of the FP50 firms experienced negative growth, and only one of the 83 broker-dealers that participated in the survey failed to generate positive revenues. TROOP SURGE But even though no firm in this year s survey succeeded in putting up consistently strong numbers across the board, there were still some clear winners. For instance, any analysis of Cambridge s performance would have to begin with its stellar recruitment efforts. While the FP50 collectively dropped,757 reps from the previous year s survey, Cambridge boosted its total to 1,971 in 009, from 1,63 the previous year a 0.8% jump. The firm also increased its number of producing reps by roughly %. LPL absorbed three broker-dealers, resulting in superior recruiting results by increasing its total reps to an astounding 11,14 from 9,315. This represents a 0.4% gain. National Securities, one of the three FP50 firms to finish with positive revenue growth, also had a solid recruiting year. The New York City-based broker-dealer increased its total reps to 636 from 535 in 008, or by roughly 18.9%. It also grew its corps of producing reps at a robust 4.5% clip. American Portfolios Financial Services (17.9%) and Geneos Wealth Management (11.4%) also had double-digit growth in recruitment. In addition, Triad Advisors, a new addition to the FP50 this year, increased its total reps to 450 from 400, for a 1.5% jump. Firms on the wrong side of the recruitment numbers included SagePoint Financial (-1.7%), Primevest Financial Services (-30.1%) and Investors Capital (-0.4%). Nineteen firms in the FP50 had a net gain of reps, while 0 firms had a net loss. The size of our firm is really helping in [recruiting], says Mark Mettelman, president and CEO of Triad. We position ourselves as more of a boutique alternative to either a mom-andpop firm or a very large firm with thousands of reps and advisors. With just under 500 advisors we really have the resources The Numbers Were Down, but 009 the advisors need, but we re still of the size that we can treat them as family and know the names of our advisors. Eric Schwartz, CEO and chairman of Cambridge, credits his company s recruiting success to what he says is the firm s solid reputation in the industry as a broker-dealer that helps advisors grow their businesses. Last year, about 50% of Cambridge s new advisors came through referrals from existing advisors, Schwartz says. Another 0% came through referrals from other industry players such as wholesalers. Cambridge gets between 100 to 00 unsolicited calls from advisors every month even before they try to recruit. If you re going to grow your advisors by 0% over the previous year, you have to recruit a large number of new advisors, but at the same time you have to not lose too many of your existing advisors, Schwartz says. Last year we were fortunate to do both. Cambridge evaluates recruitment numbers in terms of revenue that reps bring in. For a number still had winners. of years they recruited at about $30 million a year. And then it jumped up to $45 million, then $56 million, and in 009 it was at $71 million. So $56 million was considered acceptable because that s what they got the year before. And good would be $60 million. Webber says Cambridge put extra effort in building relationships with existing advisors based in regions it was targeting. This meant doing a lot more recruiter education and teaching advisors how to be an extension of the B-D s recruiting process. TRAILING OFF When we reported on the recruitment frenzy that was occurring in the independent broker-dealer world for our 008 survey, we noted the correlation it had to the payout numbers. The average increase in total payout per firm for 007 was 19.5%, compared with 15.3% in 006. Firms obviously felt the pressure of competition to nab skilled, experienced advisors, and sweetened their offerings. In 008, that figure was shed to 8%. With last year s drop in recruitment numbers, it is perhaps not surprising that it coincides with plummeting payouts. In fact, the FP50 saw a loss in total payout per firm in 009 (-4.3%), as well as a loss in average payout per rep (-13.3%). Primevest Financial Services (4.6%) had far and away the biggest payout growth in the FP50. It was followed by First Allied Securities (5.1%), Questar Capital (5.0%), Investors Capital (4.4%) and Invest (3.1%). SagePoint Financial (-4.9%), Princor Financial Services (-38.8%) and

5 FSC Securities (-31.4%) had the biggest drops in total payout by IT S firm. UP Princor AND IT S (-37.8%), GOOD CFG/H. Beck (-37.7) and 009 biggest revenue gainers VSR Financial Services (-8.0%) had the largest declines in average payout per rep. 3.% 3.0% 1.3% THE YEAR OF THE ANNUITY If the drop-off Cambridge in data points Invest like Financial revenues and National recruitment Planning Invesetment is not altogether Research surprising, neither is the continued growth of fee-based business. Fee revenue for the FP50 now comprises 6.84% of total revenues, up from 3.43% in last year s survey and TOUGH 1% TIMES in 007. In 006, fee revenue comprised 009 biggest revenue losers just 19% of the firms total revenues. Three firms got more of their revenues Sage Point from fees Princor than Financial commissions Cambridge ING Financial Financial Services Partners ($136.7 million, or 56.3%), Geneos ($9.8 million, 51.4%) and Commonwealth ($.8 million, 54.5%). Centaurus Financial (10.6%), SII Investments (6.4%) and Investment Centers of America (4.1%) had the biggest growth in fee revenues. One of the more interesting developments 5.9% in this latest survey is the growing impact that annuities, and especially variable annuities, had on product revenues. Annuities accounted 38.5% 37.0% for $3.7 billion, or 6.% of total product revenues in 009. Meanwhile, variable annuities were responsible for $3.1 billion, or 85% of this total. In addition, variable annuities accounted SHEDDING for $.3 REPS % of total product revenues. Fixed annuities, Change by comparison, in total reps accounted for $495.3 million, or 13.5% of the total annuity revenues. In last year s survey, fixed annuities generated.4% of total industry revenues and 9.74% of total annuity revenues. Annuities accounted for.81% of total commission revenues in the 009,757 survey. Although variable annuities have gotten a fewer bad rap in the past, James Cracchiolo, chairman and CEO of reps Ameriprise Financial Services, says they remain important product solutions for advisors and their clients. He cautions, however, that the annuities that companies put on the market should be ones that they can stand behind for decades. If not, the consumer will not fully benefit from their investment. I think that annuities overall are a very important product for the end consumer because they provide a more consistent return over time and give them more of what they require as a paycheck, Cracchiolo WHERE says. Products THE MONEY like variable WENTannuities with living benefits 009 are also change important in commission because revenues they give them a floor and a level of comfort that they will have a certain amount of 19.3% money that they can count on. Mutual funds accounted 13.6% for 18.87% of total product revenues, while insurance made up 7.5%. Bonds accounted for 8.3% 1.56% of total product revenues, which is a massive plunge from the 8.86% it made up in last year s survey. Stocks tallied 3.08% of total product revenues, up from.1%. Stocks Alternatives also rose slightly to 4.33% of total commission revenues, Alternatives Annuities Bonds up from 3.93%. 4.6% FP FEES CHARGE FORWARD % Of Total Revenues from fees 01 PAYOUTS SLIM DOWN 009 total payout SMALLER CHECKS FOR ALL 009 average payout per rep % 13.31% 6.8% 1.9%

6 Total Revenues rank total revenues commission revenue fee revenue other revenue company $000s % change $000s % change $000s % change $000s % change LPL Financial 1,567,656 (0.8) 1,35, ,78 (7.1) 553,679 (7.6) Ameriprise Financial Services,046,716 1,00, ,816 17,837 Raymond James Financial Services 850,569 (13.8) 435,80 (16.7) 309,7 (10.1) 106,017 (1.1) 3 AXA Advisors 490,600 (17.5) 416,100 (17.7) 58,100 (18.9) 16,400 (6.8) 4 Commonwealth Financial Network 488,476 (8.) 188,476 (.9) 5,793 (9.4) 74,06 (16.8) 5 Securities America 41,143 (15.0) 31,597 (18.5) 134,75 (13.4) 45, MetLife Securities 377, ,974 3,058 5,059 6 Northwestern Mutual 3 376,118 (17.0) 09,76 (.4) 106,0 (5.4) 60,370 (14.6) 9 NFP Securities 35,870 (17.9) 49,60 (18.) 6,869 (19.4) 13,399 (4.0) 7 Royal Alliance Associates 317,458 (9.) 174,567 (30.) 110,83 (8.0) 3,608 (7.5) Financial Network Investment Wells Fargo Advisors Fin. Network 4 John Hancock Financial Network, 5 National Planning 309, ,146 87,917 58,13 (15.9) (3.7) ,805 17,8 63, ,857 (15.6) , ,894 19,91 49,177 (15.3) (8.9) (.3) 19,846 71,970 4,0 0,179 (.3) (6.7) Cambridge Investment Research 49, , ,77. 6, FSC Securities 9,076 (9.) 19,65 (31.1) 75,470 (7.8) 3,981 (.7) 10 SagePoint Financial 6 7,64 (38.5) 143,9 (41.8) 50,854 (37.8) 3,488 (19.8) 16 Woodbury Financial Services 3,36 (15.0) 194,730 (15.5) 16,845 (7.) 11,66 (16.8) 1 Waddell & Reed 18, ,476 43,993 10, First Allied Securities 09,058 (5.6) 11,05 (1.) 44,933 43,100 (13.3) ( ) Indicates negative number numbers include Mutual Service, Associated Securities and Waterstone Financial Group. Changed reporting methodology from 008 to Assets represent programs of Northwestern Mutual Wealth Management Co. and Investment Services. 4 Formerly Wachovia Securities Financial Network. 5 Formerly Signator Investors. 6 Formerly AIG Financial Advisors. REVENUE GROWTH total % rank company rev $000s growth 15 Cambridge Investment Research 49, INVEST Financial 175, National Planning 58, National Securities 6,878 (0.3) 30 NEXT Financial Group 13,189 (0.8) fee-based mix fee revenue % of rank company $000s business 15 Cambridge Investment Research 136, Commonwealth Financial Network 5, Geneos Wealth Management 9, Wells Fargo Advisors Fin. Network 108, Ameriprise Financial Services 808, LPL Financial 1,567,656 (0.8) Centaurus Financial 73,814 (1.7) SII Investments 116,754 (.4) Wells Fargo Advisors Fin. Network 308,146 (3.7) Investment Centers of America 60,690 (3.9) Triad Advisors 4, Raymond James Financial Services 309, Securian Financial Services 39, Genworth Fin. Securities 36, Royal Alliance Associates 110, numbers include Mutual Service, Associated Securities and Waterstone Financial Group. Formerly Wachovia Securities Financial Network. 3 Statistics include average production from each firm s top 0% of reps. 4 Assets represent programs of Northwestern Mutual Wealth Management Co. and Investment Services SourceMedia Inc. and Financial Planning. All rights reserved. SourceMedia, One State Street Plaza, New York, N.Y (800)