“A lot of advisors are looking for a small firm that will take care of them,” said Stephen Kohn, founder of Stephen A. Kohn & Associates in Lakewood, Colo., which has 32 affiliated reps. “They’re not necessarily looking for a [high] payout, but a good, clean place to work.”
Small firms can be flexible, said Cathy Cucharale, chief operating officer and chief compliance officer at M. Griffith Investment Services in New Hartford, N.Y., with 22 employee reps. For example, some firms don’t allow direct business, but her firm supports it by taking on the task of tracking assets held outside of its clearing firm, Wells Fargo Clearing Services. And M. Griffith has worked with Wells Fargo to make DFA Funds available to its advisors, something larger competitors may not offer.
An advisor “can connect directly to our people, and facilitate getting a [software] program they want,” Cucharale adds.
Consolidation in the industry has increased frustration among advisors in many cases, small-firm execs say, which has helped them bring on additional advisors and teams.
Meanwhile, as the industry has become more commoditized, offering more robust financial planning services is seen as a competitive advantage.
“All our reps are CFPs, and do a lot” of planning, says Matthew Savery, chief investment officer at M. Griffith. Clients will question what they’re getting for a 1% management fee, and want more than just investment management, he said. “We work with accountants and tax advisors, and bring the whole financial picture together. We think we do a better job than the guy across the street.”
As firms seek to attract advisors and build revenue, protecting already slim profit margins is crucial to survival. An important part of Keenan’s strategy is a “relentless” focus on expenses. To save money, he prefers doing things in-house rather than outsourcing. “Half of small firms are under $500,000 in revenue [and] if they’re not watching their pennies … all of a sudden, they’re spending a lot of money.”
Don’t skimp on compliance, though, Brown warns. Regulatory problems, and the expense and time they eat up, can be a killer for a small firm. But don’t just throw money at compliance, he says. “Get a chief compliance officer who’s good at what they do, who’s thorough. You don’t need a lot of staff.”
At the end of the day, observers hope the small B-D space will survive. “What regulators forget is that [smaller] B-Ds bring the service element to a lot of small investors, particularly in rural areas like ours,” Hamman says.