Silvia and Thomas Newell ran their tax preparation business in Columbus, Ga., for years before they moved into the investment advice business. After a less-than-stellar start with a small broker-dealer, the couple say they found their niche at Genworth Financial several years ago and credit the firm with helping them grow their fee-based wealth management business to $50 million right out of the gate.
"It's amazing what's happened in the past few years since we started working with Genworth," says Silvia Newell. Adds Thomas, her husband and business partner, "Once we started offering fee-based services, we started to attract clients with $500,000 and more. It's remarkable."
Those words are exactly what Genworth Financial Investment Services CEO Enrique Vasquez wants to hear. Vasquez says the firm is beginning to reap the rewards of its consultative approach toward helping advisors-both seasoned and new-build their wealth management firms. "Everything we do as a company is geared toward helping our advisors grow their wealth management business," Vasquez told Financial Advisor magazine during Genworth's ninth annual national convention in Washington, D.C., in June.
Along with all of the broker-dealer executives we talked to for this article, Genworth saw tremendous growth last year. Vasquez and his team grew the firm to 2,400 representatives in 2006 and saw a 50% increase in assets under management. Average rep revenues increased by 22%, with more than 60% of it from recurring revenues and total client assets reached $16 billion.
Like Genworth, other broker-dealers across the country are reporting record revenue increases-a significant portion of these from fee-based business-and say they're continuing to step up their game in order to recruit advisors with significant practices.
"At this point we are getting more selective about the advisors we bring on," Vasquez says. "It's not so much about a head count anymore. We want to add $5 million in revenues. To do that, at the end of the day we realize it's about the quality of the advisors we work with. We want folks who have relationship-based values and who consistently put clients first."
One advantage Genworth has, he says, is that 80% of its advisors are CPAs, enrolled agents or tax preparers, who usually have 300 to 500 clients who already trust them. Helping advisors transition those customers into wealth management clients is Genworth's No. 1 goal.
To do that successfully, "We're really updating the services we provide across the board," Vasquez says. One of the firm's major advancements is its Portfolio Access Web-based account aggregation and client management system. Genworth is also introducing Web-based smart forms, data analytics and faster back-office access.
All of these tools are designed to help advisors build the type of business they envision when they think about where they want to be a year from now and beyond, Vasquez says. To that end, Genworth has built seven regional planning specialist teams and is using coaches to help advisors enhance their success. "Our consultative approach is designed to help them formulate a business plan that helps them achieve their goals, and our platform helps them put clients first."
Advisors say they benefit from their partnership with Genworth as investors' needs become more complex. "People who come in our door expect more from us in terms of helping them deal with all of the financial and family and life-changing events they go through," Silvia Newell says. "Genworth's programs help us capture clients' assets, track their net worth and assist them with all of their needs, from selling a business to helping with long-term care."
The quest to recruit, reward and retain larger advisors is taking center stage at more broker-dealers. At Raymond James, a new bonus program will reward producers at the highest levels-those with $3.5 million production-by giving them a 90% payout and a 10% bonus. The new bonus program starts with a 1% benefit for reps who have $450,000 in annual production and goes up to 10%, based on the reps' production. Currently, only about 500 of the firm's 3,100 advisors qualify for the bonus, but company executives are hoping to increase their ranks of elite producers through recruiting and training, RJFS Chairman and CEO Dick Averitt says.
Executives hope the bonus program will buoy recruiting, after some losses from the firm's clampdown on variable annuities payouts, although they maintain that their revenues and reps' levels of production are increasing steadily. Currently, Raymond James Financial has 4,650 advisors, including those in Canada. The firm has 101 million-dollar producers today, up from 25 in 2002. In other upbeat news, recurring revenues have increased to 54%, from 44% in 2002.
To reach out to top producers, Bill Van Law, senior vice president and national director of business development at Raymond James Financial Services (RJFS), says his strategy of increasing recruiters at the company (from seven to 14 in the past year) and putting them in the field in six regions is starting to pay off. "Advisor visits to our home office are running at about 80% higher than last year and we have some very large people in the pipeline," says Van Law, who notes that the firm typically sees a six-to-nine-month lead time for new advisors. "Our real goal is not so much to add new recruits as it is to increase revenues by 20%, through new and existing advisors."
And what have been the top sources for new advisors at RJFS? The continuing exodus from wirehouses, Van Law says. "Morgan Stanley has been the biggest source of new advisors for us, but Smith Barney has just about caught them over the past three years. Now they're about neck and neck." The merger of AG Edwards and Wachovia may flush out more advisors who want to own their own businesses, he adds.
"We think we're a great fit because we're just more financial advisor-centric," Van Law says. "Advisors own their business and they're our primary clients. That vision statement has resonated with advisors." To demonstrate to existing advisors that RJFS will walk the walk, each senior manager visited three advisors' firms over the summer and spent the day talking to principals and staff to find out their greatest challenges and to ask how RJFS could help. The fact that BusinessWeek rated RJFS one of the country's top 25 "client-pleasing" brands (the company came in No. 16) is another helpful tool, Van Law adds. "We really take our mission to consumers and advisors seriously," he says.
LPL Financial Services continues to dominate the independent landscape, and the firm's recent acquisition of Pacific Select, along with the 2,200 advisors of Pacific Life's advisory business, brought LPL's ranks of affiliated advisors to 10,000. Reps invested $126 billion with LPL in 2006, $50 billion of it in fee-based programs. Bill Morrissey, LPL's executive vice president of branch development, says many factors are driving advisors to look toward independence for the next phase of their firms' growth. Consolidation is continuing at a rapid pace. "At the same time, there is a core group of very seasoned advisors who are boomers themselves, and they're wrestling with the challenge of how they can build real equity and own their practice, something they can't do at wirehouses," Morrissey says. Meanwhile, the so-called "Merrill rule," which is forcing broker-dealers to eliminate fee-based brokerage accounts, is giving many wirehouse advisors pause about where and how they want to build their business.
"All of these factors are driving bigger producers and producer groups to transition to an advisory model, and we have the tools, training, platforms and practice management consultants in place to help them facilitate that transition," says Morrissey.
One high point of LPL's services is its business consultants, who visit firms and produce profit-and-loss statements so advisors can see the cost and growth drivers for their companies and benchmark these against others of their size and against what the consulting firm of Moss Adams says they should be spending. "Over the past three years, our advisors have grown 15% or more annually. It's important that we continue to offer them services to help them achieve meaningful scale in their local markets," Morrissey says.
Gary Bender, director of national recruiting at AIG's Royal Alliance unit, says his staff is in the midst of recruiting a number of groups with more than $1 million in annual production. To date, Royal Alliance has 2,390 reps. The impetus for these advisors to jump ship, says Bender, is the realization "that Mother Merrill, or whatever their wirehouse is, essentially owns their business. We're seeing more and more advisors hit a point where they want more independence and ownership." To help them achieve that, Bender says, Royal Alliance offers a number of options to give transitioning reps whatever degree of assistance and independence they seek.
"We're also continuing to see a significant shift to fee-based business, which accounts for more than 30% of our revenues now," Bender adds.
At Investors Capital, Andy Effron, the firm's national director of recruiting, says, "Recruiting is great this year, ahead of where we were last year. Everyone knows someone who has made the change to independence, and they say: Life is better."
Investors Capital, which added $80 million in revenues in fiscal 2006, ended March 31, has 700 producers who added a whopping 40% in revenue growth last year. "We've grown significantly over the past three years. People are coming to us from a mix of firms including wirehouses, regionals and other independents," Effron says. "They come to us because of our size and unique culture and because they want to own their business."
Effron believes that 2007 will be a record-breaking year for recruiting for the firm. "We're already ahead of where we were last year and have a lot of great folks in the pipeline. Every year we break new records, and I think this will be the best year ever," he says.