Independent brokerage firms experienced a turnaround in 2003.

Brokerage executives, like so many in the securities business, are finally getting to exhibit some exuberance as they watch their business rebound after more than two years of flat or declining sales.

"Am I happy with something other than a flat line? You bet I am," says Art Grant, president of Cadaret, Grant, who watched his Syracuse, N.Y.-based firm, which has 975 independent representatives, generate a tidy $78 million in gross revenues last year. That's up from $75 million in 2002 and 2001. Grant says he expects to do even better in 2004. "At this point investors are afraid of being left out, which is good news for reps and us," says the industry veteran.

Across the country, executives at independent firms happily found themselves in similar positions-encouraged that revenues have bounced back and optimistic that 2004 will be better than 2003, at least in terms of sales. Despite some rough years, firms also spent much of last year proudly unleashing the latest generation of Web-based technology that allows reps to aggregate all client investments and insurance products on one report, even those investments custodied elsewhere.

Firms also report that their reps made incremental headway with fee-based account offerings and wealth management services, important continuing trends in the independent world. This move upstream is critical to increasing the average size of independent broker-dealer client accounts, says Chip Roame, managing principal of Tiburon Strategic Advisors, a consulting firm that benchmarks practices and results in the brokerage and advisory businesses. Right now, clients of independent firms have an average account size of $140,000, compared with average wirehouse accounts of $380,000 and average fee-only advisor accounts of $500,000, Roame says. "Fee-based and wealth management programs will help independents serve a higher-net-worth client," he adds.

Indeed, reps at firms that have stressed these services, like Raymond James Financial Services and LPL Financial Services, have much larger average account sizes than other independent firms.

Hand in hand with this trend, say experts, is the push to get independent reps to move the selection of individual funds, stocks and bonds into the hands of managers in separately managed account programs or wrap accounts. The consensus is that doing so will allow reps to devote more time to growing their business, prospecting for and signing new clients and collecting assets from existing clients.

St. Petersburg, Fla.-based Raymond James Financial Services, the broker-dealer subsidiary of Raymond James Financial, put its money where its mouth is in this regard, lowering fees on separately managed accounts by about 15 basis points in 2003. "We did this to [encourage] reps," says Richard Averitt III, the subsidiary's chairman and CEO. "These are independent business people and they run their own businesses, so I would hesitate to use the word push. I'd rather say it's a pull," says Averitt. "We do believe, however, that private asset management tends to attract higher-quality assets and that reps that use it tend to bring in higher-quality assets."

The pull, as it were, is the latest effort by Raymond James, which serves 1,580 rep offices and another 20 advisory firms across the country, to encourage reps to generate more fee income. In 2003, the firm saw reps increase overall revenues 3% to a tidy $611 million in gross revenues. The real high point, Averitt says, came in the last two months of the year, when revenues jumped about 26% over the last months of 2002. He estimates that fee income currently accounts for about 40% of the firm's business.

Overall, Roame says, leaders in the independent brokerage arena tend to generate about 20% of gross revenues from fee business. "Laggards are around 5%," he adds.

Independent broker-dealers continue to walk a fine political line when it comes to overtly pushing any compensation or business model with successful independent reps, many of whom have been in the business for years. But that doesn't mean that brokerage firms aren't doing their best to step up to the plate and make every useful tool, resource and product available to reps who are interested in moving more of their business to fees.

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