T he vultures are circling. On any given day, as many 70% of every broker-dealer's planners are actively being courted by other firms that are hoping to capture their book of business and revenues. That's life in the independent brokerage business these days, according to statistics released at the recent Financial Planning Association broker-dealer conference in Los Angeles. It's also the cold, hard reality that Miles Gordon and his management team at ING Advisors Network are up against, as they attempt to maneuver the firm-and its seven very different broker-dealers-through a year of massive back-office consolidation and planned growth.
Is Gordon, who as CEO of ING Advisors Network now presides over the largest independent broker-dealer organization in America, up to the task?
We're not the only ones asking. The fate of more than 10,000 brokers and planners, with significantly different types of clients and specialties, is riding on Gordon's strategic ability to produce seamless service at the very same time the company integrates vast back-office systems and centralizes trading departments.
Also dependent on his prowess? The livelihoods of each of the seven broker-dealers' executives, many of whom are founded the firms that ING has acquired in the past five years.
Vast and rampant consolidation is a tall order anytime, but it's particularly dicey in the face of a sagging economy and unforgiving markets that are making rep retention and the recruiting of fresh faces even more competitive and necessary for growth. But consolidation and growth are exactly what Miles Gordon is planning. "We're at about $700 million in annual sales and I'd like to see that at $1.5 billion in five years," says the almost 30-year veteran of the securities industry.
It won't be easy to dismantle individual operations at each of the firms and rebuild a cohesive division for seven vastly different broker-dealers while still preserving their strengths and cultures, but he just may be able to pull it off. After all, Gordon, along with his group of trusted advisors and six other partners, is the guy who founded Financial Network Investment Corp. and built it until 1997, when he and partners sold it to Aetna for more than $50 million.
The firm, which was launched with 500 reps in 1983, grew to more than 3,000 reps and $200 million in annual sales at the time of its sale. Gordon and his marketing and operations team went to Aetna as part of the deal. When Aetna sold a stunningly large package of its financial services to global financial services giant ING in late 2000, Gordon and his team again went along, this time to ramp up and run ING Advisor Network, headquartered in Torrance, Calif.
In an industry where broker-dealer executives tend to be out-front entrepreneurial types, Gordon's entry into the securities world is a result of his UCLA law degree. He joined the Securities and Exchange Commission in 1972 as a staff attorney and was appointed branch chief of the Investment Company and Investment Advisors Examination Division in 1974. He left the SEC in 1978 to practice law, but he was lured away to head up a securities firm in Long Beach just one year later. He launched his own firm in 1983 by convincing top executives with large firms to form a partnership under the Financial Network Investment Corp. (FNIC) umbrella.
There are many things that set Gordon apart from the typical corporate executive, according to colleagues and competitors, which include the likes of Cadaret Grant, Linsco Private Ledger, Raymond James Financial Services and, when it comes to going head to head for clients, Merrill Lynch.
Chief among them? Gordon really likes advisors, and he's comfortable around them. So much so that he frequently stays at reps' houses when he travels. His comfort level with people and honest, but low-key personality have allowed him to develop strong and long-lasting relationships, both critics and admirers say.
"It helps to have a CEO who delivers an honest message and whose knowledge of the industry is pretty much unsurpassed," says John Simmers, chief operating officer of ING Advisors and a business associate of Gordon's for more than 20 years.
Broker-dealer and planning executives with whom he works like the fact that he started and ran a successful firm, as they do. They also like his accessibility. "I've always felt that if I wasn't getting the answers I needed, I could pick up the phone and call Miles," says Larry Carroll, president and CEO of Carroll Financial Associates in Charlotte, N.C., whose firm has been registered with Financial Network Investment Corp. through both the Aetna and ING acquisitions. "If I'm right, he's going to help me solve the problem. If I'm wrong, he'll tell me about it."
Carroll and other reps who have been with Gordon for years all mention the fact that he seems to understand and protect their independence, especially from the push to sell proprietary products. Immediately after FNIC was sold to Aetna, an Aetna public relations executive boasted that the insurance company now had "2,500 people to sell our products." Gordon told a reporter, "You're talking to the wrong person at Aetna."
"I think Miles has always been about complete choice and advice," says Jackie Figliola, ING Advisor's chief marketing officer and an associate of Gordon's for 18 years. He's also forward-looking enough to remain calm, while others may be tempted to panic. "I can remember in 1987 when the market crashed and everyone was worried and Miles was talking about the benefits of dollar-cost averaging and asset allocation," Figliola adds.
As someone charged with steering his firm through all types of events, it's also a plus that his background at the SEC has made him a tough taskmaster when it comes to compliance. In fact, financial product creators often have taken their wares to his firm for due diligence first, knowing that if they got a green light there, it would be clear sailing elsewhere. "He's surely not a typical SEC lawyer or regulator," says Carroll, "but I can tell you that compliance is not optional at his firm. I hate to say it, but it might be optional at other firms."
Gordon will need all of these attributes as he moves forward to create an efficient and effective firm that preserves the informal atmospheres and long-held relationships the seven broker-dealers in the ING network have fostered. "Last year, we rolled out new products and services, and this year we're hoping to consolidate some departments and focus on recruiting," says Gordon.
The goal, say executives throughout the network, is to make the changes as seamless for the representatives and their broker-dealers as possible. That, in a nutshell, will be a tall order since consolidation will involve downsizing staffs, some, like the trading operations in Atlanta, by as much as 60%.
Such changes are making brokerage executives understandably nervous, especially in the area of broker retention. "Any time you make changes, especially if the level of service changes, you run the risk of running reps off," says Russell Diachok, president and CEO of Denver-based Multi-Financial Securities, which was acquired by ING in the late 1990s. Diachok says he finds Gordon extremely qualified and experienced, but he worries that in the current state of economic and market downturn, change can seem more cataclysmic to reps than it might during a high-flying full market. "We're diligently trying to preserve the culture and service levels that brought reps here in the first place, while making needed changes, too," Diachok says.
Gordon is not unaware of the balancing act he and his staff will have to pull off. "We know that with back-office consolidation it makes for cost savings, but there is also the potential loss of relationships," he says.
To preserve those relationships, Gordon says five or six front offices will be kept, along with the main marketing and customer service folks in each back office. The goal is to allow each firm's reps to deal with the same people with whom they've been working.
The greatest hurdle, Gordon admits, is "the pure size of this firm as it's configured now. This business, especially the independent side of it, is built on trust and relationships, and we know that. We're trying hard to maintain them, but it's not easy."
To establish the needed trust, Gordon and his executives have been going to each firm's conferences to communicate what will be gained as part of the consolidation.
At the forefront of that message are the operating efficiencies that ING hopes to achieve and the significant resources that can be reallocated to new and enhanced products and services. They run the gamut from free access to an advanced planning unit staffed with attorneys and accountants to enhanced technology that enables reps to place business electronically at point of sale and produce truly consolidated client performance reports that capture cost basis. "Our goal is to allow reps to write business easily, so they can be paid on it promptly and see the transactions immediately," says Simmers.
The firm also has tapped the rich resources of its many affiliates at ING to bring new product and service offerings to the field. Among them: The Orange Savings and Orange CD, both no-fuss preferred-banking products that pay investors 3.25% to 5% and reps who place the business 20 basis points. Preferred-rate mortgages also are available. "We think that by reaching out and establishing retail relationships at ING, we can bring very competitive products to reps. This is a win for clients and attractive to representatives," says Figliola. The company also is rolling out more perks for reps themselves, including a deferred-compensation program and inexpensive disability insurance. As part of its evolution, ING is in the process of offering trust services and alternative investments.
Gordon is betting that state-of-the-art products and services and dead-on technology are what will continue to lure broker-dealers and reps to ING. He estimates that the Advisor Network spent between $20 million and $30 million on technology last year alone and is gearing up for a similar investment this year.
In fact, without this kind of investment in technology, broker-dealers, especially smaller and midsized firms, will wither, he says. But finding technology money is getting more difficult. "We wanted to expand, and we knew we needed technology solutions that we didn't really have the money for," admits Diachok. Since its acquisition by ING, Multi-Financial has gone on a recruiting spree, shooting from 350 reps to more than 800. Revenues have soared even higher, from $25 million to $80 million in just three years.
Gordon knows the challenges of funding technology firsthand and says it was why he and his partners decided to sell Financial Network Investment Corp. "Frankly, the reason we sold five years ago was because we barely had enough money to fund technology, and then Y2K came along," Gordon admits. "With brokerage, you essentially have a system that was priced for a no-technology world, so you either have to be very big or very small. That's why I think you'll see a number of small firms and a series of large networks going forward."
While he maintains the ING acquisition binge is over for now and says he plans to devote the next year or two to consolidation and ramping up rep recruiting and revenues, he also admits that strategy could change if the market downturn puts a bevy of interesting brokerage firms on the market.
For now, though, it's about communication. "Last year, in a down market while we were still digesting much of the acquisition activity here, we still managed to grow 10%," says Figliola. "This year, now that we're telling our story, we're going to knock the ball out of the park both in terms of recruiting and growth."