What Shuld Yu Expect Frm Yur Brker-Dealer? Yu and yur practice are unique. Yu ffer experience, a niche and clients, and yu have needs and gals t succeed in business. When it cmes t the health and well-being f yur practice, few decisins have a greater impact n yur business than chsing yur independent brker-dealer. Each brker-dealer is different, ffering varius service levels, technlgy, prduct fferings, csts, and payut and cmpensatin packages. With hundreds f brker-dealers t chse frm, hw d yu chse the right ne? The independent brker-dealer (IBD) cmmunity has, since its inceptin, been an imprtant and active part f the American financial culture. Having yur wn independent practice can be very rewarding. Hwever, as a business wner, yu have respnsibilities, including day-t-day ffice management and cmpliance. Having a clear understanding f the capabilities f the firm yu select hw the rganizatin will supprt yu and yur business, and hw it cmpares t ther firms is critical in chsing the right brker-dealer fr yur business. Accrding t Registered Rep. s 2012 Independent Brker/Dealer Reprt Card, Despite a tugh market envirnment and a squeeze n prfit margins, plenty f IBDs large and small are ding an excellent jb f keeping their financial advisrs happy. But analysts and executives predict the brker-dealer landscape may change dramatically in the next few years as the buying and selling f firms accelerates. And because f this, analysts say financial advisrs will need t rethink their career strategies, examine their career aspiratins and prepare fr a ptentially turbulent future. As with any industry, there s always cnslidatin. 2011 was a busy year fr deal-making and ffered a taste f what culd cme. A number f majr independent brker-dealers merged, which meant a lt f stress and upheaval fr financial advisrs. In additin, IBDs have had t respnd regularly t changes, including a cmplex and challenging tax, legal and regulatry envirnment, a highly cmpetitive service envirnment and demgraphic shifts such as the prjected dubling f the senir ppulatin by 2030, with ne in five U.S. residents age 65 r lder driving new client needs. In respnse, independent brker-dealer firms have invested millins f dllars in advances and enhancements t technlgy, peratins and cmpliance. Imprvements t the training and educatin f hme ffice staff and affiliated financial advisrs have als enhanced the verall effectiveness f IBDs peratinal efficiencies. But is that enugh t retain financial advisrs? Accrding t Investment News, each year, apprximately 9,500 investment prfessinals leave their brker-dealer relatinship fr anther. Althugh financial advisrs typically spend a significant amunt f time explring what a new firm can d fr them, they seldm spend sufficient time explring the dedicated resurces that the ptential new firm has fr mving their business efficiently, r asking themselves a very imprtant questin: Hw vested will this brker-dealer be in my success? 2013 Summit Brkerage Services, Inc. All rights reserved. 1
With thusands f brker-dealer firms available, it can be difficult t find a firm that checks ff all the bxes f what s imprtant t yu. Yet, making yur way thrugh the many available ptins, evaluating benefits, weighing ptential dwnsides and determining what life will really be like with a new brkerdealer is critical. Fr example, hw well des the brker-dealer service its advisrs? Hw well capitalized is the brkerdealer? Will the brker-dealer wrk with yu t grw yur practice? Des the brker-dealer prvide upfrnt mney? These are just a sampling f the imprtant factrs yu need t cnsider when chsing the best brker-dealer fr yu. The IBD industry ffers financial advisrs chices n service mdels, rganizatinal preferences and cmpensatin structures. And with mst independent brker-dealers ffering the same financial prducts, the real differentiatr becmes service and culture. While many independent firms refer t their financial advisrs as their partners, is this really the case? Large firms may appear t have greater resurces and better technlgy than smaller firms, but ftentimes an advisr is mre likely t get lst in the crwd. Cntrary t what many advisrs think, smaller brker-dealers ffer the same technlgy bells and whistles as the larger firms. This technlgy is usually utsurced and nt private labeled like many f the larger firms. Plus fr many advisrs a smaller firm ffers advantages and a cultural element that desn t exist anywhere else. There s als a better chance f being heard and mre ften than nt, advisrs will have direct access t decisin makers and will receive mre persnalized service. One example f a firm with a unique and pwerful culture is Summit Brkerage Services. The rganizatin differentiates itself by recgnizing that servicing clients is the mst imprtant benefit their financial advisrs prvide, while servicing the financial advisr is the mst imprtant benefit it prvides. Funded in 1983 by frmer financial advisrs, the cmpany was named the #1 Independent Butique Brker-Dealer tw years in a rw and has als been recgnized as ne f the Tp 50 Independent Brker-Dealers by leading trade publicatins. With a netwrk f mre than 330 financial advisrs perating frm mre than 225 ffices thrughut the United States, the Cmpany maintains a butique firm f high-quality, high-prducing financial advisrs. Its philsphy remains as it has frm the start: t treat its financial advisrs as its clients. In the search fr the ideal brker-dealer partner, yu shuld carefully cnsider what type f affiliatin will prvide the best fit nt nly fr where yur business is nw, but mre imprtantly, where yu want yur business t g. Des the ptential brker-dealer currently have the prgrams and persnnel in place t prvide the type f supprt yu need? Will it in the future? Can the ptential firm help yu prvide a better client experience? Hw will the ptential brker-dealer make ding business easier r better? Like larger brker-dealer firms, Summit ffers a full cmplement f investment prducts and services, including traditinal brkerage services, fee-based prducts, annuities and ther insurance-related prducts, mutual funds and alternative investments. And it ffers cmpetitive pay-uts and prvides 2013 Summit Brkerage Services, Inc. All rights reserved. 2
business planning supprt, marketing prgrams, state-f-the-art technlgy, and easy (and encuraged) access t senir management. Anther significant cultural difference can be fund n the cmpliance frnt. Hnestly ask yurself if yur firm takes a cnsultative apprach t addressing cmpliance matters, r des it sht first and ask questins later? Summit believes in the cnsultative apprach that is, wrking with its financial advisrs t develp highly cmpliant slutins t particular needs. Evidence f this cmmitment t cmpliance can be seen in Summit Brkerage s maintenance f ne f the highest ratis f cmpliance persnnel t financial advisrs in the industry, assuring that all matters are addressed timely and apprpriately. Summit als vests itself in the success f its financial advisrs by prviding Summit Slutins, a cmprehensive platfrm fr its financial advisrs t grw and develp their practices. Incrprating sme f the industry s best-f-breed technlgy, mst widely respected caches, and best available training and cntinuing educatin, Summit Brkerage financial advisrs are presented with unlimited pprtunities t grw their practices. Additinally, fr thse financial advisrs interested in adding additinal financial advisrs t their ffice, Summit Brkerage will wrk t identify and transitin financial advisrs int that ffice. Under certain circumstance, Summit Brkerage will even prvide upfrnt financial supprt t incentivize a financial advisr t jin the ffice. Balancing the prs and cns f bth larger and smaller brker-dealers invlves ding yur hmewrk and asking the right questins. Shane Westhelter, AEP, CLU, LUTCF, f Dublin, CA, has cmpiled a cmprehensive checklist that can help yu evaluate yur ptins. 1. Culture and character. What is the character after yu are cntracted r things are nt ging well? Ask fr a hme ffice due diligence meeting, s that yu can bserve the internal culture and try t judge their true character the best that yu can. Asking fr references frm thers wh are already with the firm is als wise, but keep in mind they mst likely will nt give yu a unhappy representative as a reference. The best way t judge is t research the grwth and lst rate f prducers ver the past several years. If mre advisrs are jining and few are leaving, then it may be ne t cnsider. 2. Integrated Technlgy platfrms. What can they supprt and prvide? Is cnslidated statement reprting available? What des the website and representative access t infrmatin lk like? What systems are in place fr trade placement, research, illustratin generatin, client service and cmmunicatin with the hme ffice staff? D they ffer discunted sftware prgrams that yu may want fr yur business? Is it an pen platfrm, r are yu limited t using nly their selected vendrs and prgrams? 2013 Summit Brkerage Services, Inc. All rights reserved. 3
3. Cmpliance versight. This is an area that yu need t make sure yu like. The better the cmpliance, the better prtected yu and yur clients will be. The cmpliance department shuld be yur ally yur team f prfessinals that help keep yu ut f litigatin and prtect yur clients frm making the wrng investment r prduct decisin. Knw what they expect, what they permit and hw their system wrks. What is the ad apprval rate, turn-arund timeframe, prduct apprval rate, and d they ffer supprt t help yu edit, craft r get it thrugh the system? Als, yu may want t knw hw ften they audit yur ffice, and wh will be ding the audits lcal staff, hme ffice staff r a third-party cnsulting firm? D they prvide guidance and file structure, r is it up t yu t find ut as needed? 4. Business develpment, caching, mentring and marketing supprt. Successin planning, business planning and marketing are key items t cnsider. It is nt always abut the mney, as the right business develpment supprt can increase yur bttm line mre than a cmmissin cntract increase. D they have nging training, webinars, lcal and/r reginal meetings t help yu learn abut prducts, running yur business as a business r new technlgy platfrms? D they have a marketing department that can assist yu in ad design, marketing materials and/r any frm f lcal r reginal marketing supprt? Will they help yu evaluate yur business if yu decide t retire r sell yur business? Will they help finance a transactin t buy a practice r if yu want t sell yur practice? 5. Cntact management systems. It is imprtant fr nt nly transitin purpses but als ease f ding business t knw if the cntact management system that yu currently use will integrate with the brker-dealer s system. Will the data electrnically transfer? Can yu use yur wn cntact prgram r nly ne prvided by the brker-dealer? D they have a paperless capability system r will data need t be inputted manually and stred as paper files? Is the data backed up and can it be accessed remtely? 6. Prducts and services. One f the main functins f a brker-dealer is t act as the cnduit t allw yu t gain access t the prducts and services that yu want fr yur clients. What vendrs d they have selling agreements with? What third-party mney management firms d they allw n their platfrms? Hw many cnference meetings d they prvide? What abut prduct training meetings r business develpment meetings? What is the hme ffice emplyee supprt rati t number f representatives in the firm? What is the average prductin f the current representatives? In additin t asking what the firm can d fr yu, it s als imprtant that yu understand the financial cnditin f the firm yu are cnsidering. With a tugh ecnmic landscape, in the last few years mre than 30 independent firms have clsed. In almst every case, these firms were frced t clse because they lacked the financial strength t cntinue in business and meet their utstanding bligatins. Many f these bligatins arse frm adverse arbitratin awards related t the sale f alternative investments that failed t perfrm, such as Prvident, DBSI and MedCap Funding. As any financial advisr affiliated with ne f thse firms can tell yu, the impact n the advisr s business f having t transitin clients thrugh such a prceeding can be incredibly stressful. 2013 Summit Brkerage Services, Inc. All rights reserved. 4
Because n financial advisr wants t be in the psitin f having t explain t their clients why the firm they chse t assciate with is n lnger in business, Summit Brkerage believes there are fur very imprtant questins yu shuld ask yur existing firm r any prspective firm: What is the firm s net capital and excess net capital? What type f errrs and missins insurance des the firm carry, including what types f claims are cvered and the types f limits? Des the firm make markets and carry its wn inventry, and if s, in what types f securities? What prprietary prducts des the firm ffer, and if they d, will yu be pushed t sell them? Net capital and excess net capital represent sme f the principal measures f a firm s financial strength. Simply put, a firm s net capital is equal t the wner s equity sectin f its balance sheet, reduced by certain items as required under SEA Rule 15c3-1. Excess net capital relates t the amunt by which the firm s net capital exceeds the statutrily required amunt as determined by FINRA. Excess net capital is imprtant because it signifies a firm s ability t withstand ptential adverse awards in excess f insured lsses, market dwnturns, negative perating results and significant lsses in the firm s prprietary trading accunts. This is exactly what happened t several brker dealers that sld significant amunts f the afrementined alternative investments. A lack f financial strength can als be signified by a brker-dealer that tends t underpay its emplyees and advisrs amunts that they are wed, as well as the vendrs with whm it des business. Changing brker-dealers may be ne f the mst imprtant decisins yu make in yur career. Cnduct yur due diligence, ensure that the prspective brker-dealer is financially stable and has a track recrd f prviding the services yu want and need nw and in the future. With the right brker-dealer yu will be able t take care f yur clients, achieve yur financial gals, leverage yur skills and grw yur business. Investment News gt it right: The brker-dealer f the future will be an rganizatin that listens and respnds t the needs f its investment prfessinals and helps them address a changing investr market. It will be an rganizatin that values and develps talent in the hme ffice as well as in the field. The advisry business will fuel the grwth, but efficiency and prductivity will translate the grwth int prfitability. Summit Brkerage Services is that firm. Fr mre infrmatin, visit www.jinsummit.cm r call 800. 354.5528. 2013 Summit Brkerage Services, Inc. All rights reserved. 5