Making A Go Of It
In spite of all the challenges, B-D owners remain optimistic about staying small and finding a way to compete.
“Business has been good,” says Keenan. Like many independents, St. Bernard Financial caters to smaller producers, some of whom may engage in the securities business alongside an insurance agency, CPA firm or other enterprise.
“Smaller producers want more freedom,” Keenan says. “They don’t want a supervisor pushing them to be more productive.”
Smaller firms may also be able to survive by specializing. “We’re in good shape,” says Jim Johnson, president of Washington Securities Corp. in Chevy Chase, Md., a 13-rep firm with a focus on bonds and preferred stocks. “We have a great business, with not a lot of problems.”
Can he compete with larger firms? “Absolutely,” Johnson says, adding that his clearing firm, RBC Correspondent Services, keeps him in the race technology-wise.
Washington Securities isn’t looking to become a huge player, but Johnson says he can pick up a smaller wirehouse rep every now and then. “The kind of broker we’re interested in is a stockbroker,” he says. “If we’re able to find an older [wirehouse] broker [who] can’t keep up the pace there, we’ll accommodate them. The issue with the big wirehouses is that the pace is incredible.”
“We thrived during the financial crisis,” says Bandes at Mutual Trust Company of America Securities. He insists his firm continues to do well. As of April, he’d recruited $2 million in production so far this year.
The secret? His small size gives him the flexibility to support reps the way they want.
“If you [the advisor] go to the big outfits, when you send advertising in [for approval], who reviews it? Probably an ex-Finra examiner [who] could care less,” Bandes says. “If they send it to me, I may tell them they can’t send it out, but here’s a way to change it, make it sound better [and] it will be compliant at the same time.”
Bandes doesn’t buy the idea that advisors are looking for larger dealers—at least not advisors who are already at large firms. “They want to exit the big firms and come to small firms,” Bandes says. “If you come in as a client [at a large firm], you come out usually with a managed account of some sort. If [an advisor] leaves, it’s easy for the client to stay.”
Bandes calls the homogenized nature of the bigger players the “Walmartization” of the business, which he thinks is unappealing to sophisticated advisors and clients.
So to those who think the small B-D niche is headed to extinction, think again say small firm owners. “Yes, we can survive, but we have to make changes in what we’re doing,” Keenan says, such as improving efficiency and watching costs.
“You need to look at each rep and make sure you’re comfortable with what they’re doing,” he says. “You might not be able to take a chance like you used to on lower producers” whose revenues may not justify the costs of supervision and management. “There will always be a place for small shops,” he concludes.
The compliance responsibility that small firm owners take on can be a challenge, Johnson says, but at the end of the day it’s worth it. “You’re not held to the constraints of some management dictate put out by a bunch of guys who aren’t licensed,” he says.
For owners of small independent firms, that would be a worse fate than anything Finra or the DOL could throw at them.