Fee-based advisors are leading the charge at independent broker-dealers.

    An unflinching stock market along with soaring increases in fee-based accounts fueled revenues at major independent broker-dealers throughout 2004. The continuing story of fee-based profitability is not lost on brokerage executives, who are ramping up programs designed to attract more planners to a fee-based business model and away from traditional commissions.

    "The question that was always hanging out there was would clients pay a fee in a bear market," says Bill Dwyer, managing director of branch development at LPL Financial Services in San Diego. "But that was one of the pretty interesting aspects of the bear market. Investors demonstrated for the first time their clear preference for receiving advice on a fee basis. We not only retained assets at an incredible rate, we acquired them," says the veteran brokerage executive.

    Just how successful has LPL's advisory business been? Advisors have almost doubled assets at the firm since 2000, for a total of $28.8 billion under management. The revenue stream at the firm hit the extraordinary $1.1 billion in 2004. As sweet, says Dwyer, is the fact that 55% of the firm's fee revenues are now recurring. Remember that this is a brokerage house that was managing no assets in 1991. So it's not surprising that LPL is pumping millions of dollars into technology, consulting and education programs that will make existing advisors better at what they do, while encouraging commissioned-based folks to switch.

    Firms across the country are reporting similar stories. "The trend to fee-based investing is probably the most substantial trend in the investment business today and it will continue." says Chip Roame, managing director of Tiburon Strategic Advisors, a national consulting firm that works with broker-dealers.

    Not surprisingly, broker-dealers who saw much of their double digit growth come from advisors in 2004, are betting Roame is right and are delighted to have a year like 2004, instead one like the years that proceeded it. "The asset management business continues to do well and is a growing part of our business," says Bill McGovern, senior vice president of business development at Raymond James Financial Services. An increase in advisor fees at the St. Petersburg-based broker-dealer led to approximately a 20% increase in revenues in 2004.

    To ensure advisor assets continue to develop, the firm is offering advisors five different models for doing fee-based business, ranging from the traditional broker mode to being a full-fledged independent contractor responsible for all their own income and overhead.

    Advisors affiliated with Raymond James can also choose, if they are fee-only, to use the firm for custody and clearing services alone. More advisors are joining the fee-only ranks, McGovern says. Last but not least, reps with the company can choose to set up a brokerage operation at a bank or credit union and run their business through Raymond James. The firm currently has affiliated advisors at some 235 smaller banks and credit unions and sees this as high-growth area.

    While Raymond James has had different affiliation alternatives for advisors in the past, the firms new AdvisorChoice program brings the options under one cogent platform. "Advisors should have choices, just like investors should," McGovern says "It's also important that they can change over time because their goals or circumstances change."

    More and more, McGovern says, advisors want flexibility and choice when it comes to their business operations, especially when they transition more business to fee-based programs. Often someone working with us as an employee wants to start their own office or move their business along the spectrum . With our options, they don't have to take their assets out of the firm to do that," McGovern says.

    The AdvisorChoice program also aids  Raymond James recruiters as they work to bring on independent fee-only advisors and brokers who want to move toward a fee-only model, but find it difficult to make the transition cold turkey because of the time and initial loss of income it can entail.
"We're giving these folks a two-step process," says McGovern. "What we say is 'Bring your license and clients and move your business to our independent contractor side as an interim step. And then in the six to nine months it takes to get your business set up as an RIA (registered investment advisor), we'll help you migrate to fee-only.'" McGovern says.

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