While so many of the major Wall Street firms are busily chasing the “high net worth” crowd, who’s taking care of the rest of us? “The statistics show that there are an awful lot of assets in the $100,000 to $400,000 range,” says Eric Schwartz, the CEO and president of Cambridge Investment Research of Fairfield, Iowa, an independent broker-dealer that’s already added more than 100 reps this year while growing its revenues by an average of 40% a year for the last six years.

The national wirehouses “are definitely leaving behind a huge amount of assets, and that’s helping me and my competitors grow rapidly,” Schwartz says, noting that the “bread and butter” of the independents is clients with assets in the $250,000 to $2 million range.The stock market is far from alluring, and now that interest rates are up, plain vanilla bank CDs are back in vogue.

But firms of all kinds – independents, regionals, insurance companies, bank brokerages - are still managing to grow their sales teams and revenues by tapping into that huge and largely underserved middle market. Sometimes, they’re managing to do that by forming new and creative combinations – for instance, Allstate, with its new and growing network of “personal financial representatives” who work in tandem with its insurance agents on needs-based selling. Or, it could be the old-line Southern brokerage firm of Morgan Keegan – transformed after a series of bank acquisitions that made it stronger and more resourceful.

Below you’ll find the stories of six outstanding firms that are still going full steam ahead – hiring and growing, and growing their assets under management.

And, what’s noticeable about all six is that, though their stories vary, they all know how to treat an advisor right, which is – of course - the starting point to treating the client right.


“We don’t want to try to shove a square peg into a round hole,” says Chip Walker, the managing

director in charge of financial advisor integration at Wachovia Securities in Richmond, Virginia.

“Sure, all firms go on and on about why they think they’re different and special,” he says. “But what’s resonated very well with experienced financial advisors in the industry in the last year is our multi-channel business model.” An advisor can join Wachovia Securities as either a full-service broker, a bank broker or as an independent notes Walker. “We often have FA’s looking at two of our channels, but at least one of our channels will be a good fit.”

Wachovia has been hiring aggressively in 2005 and 2006, to the point where some headhunters cite Wachovia as the No. 1 recruiter in the industry. Walker says the firm hired a total of 732 brokers for all three divisions last year, and based on mid-year figures, he expects to hire even more this year: about 1,000. Walker says that the majority - about 60% - join its full-service unit, the Private Client Group; about 25% join its bank brokerage division, the Investment Services Group; and the other 15% opt for independence via its Financial Network, or FiNet. FiNet is the smallest of the three units, but growing the most rapidly. As of June 30, 2005, FiNet had 389 reps; by year-end, the head count had increased to 446; and by mid-year 2006, it had slightly risen to 487. With the other two divisions, head count has remained basically flat, despite all of the hiring. A company spokesman explains that for different reasons, both the full-service and bank brokerage units have had significant outflows that have pretty much balanced out the new hires.

As of mid-year 2005, the Private Client Group had 5,926 reps, and by year-end that number had slightly increased to 6,043. However, by the middle of this year, the number had declined to 5,966. The full-service unit had an unusual number of retirements at the end of 2005, as a number of its former Prudential brokers hit the point where they could cash out on their pre-merger retirement plans. The PCG unit also had some attrition of its lower-end producers, as the result of a new payout schedule that was put into effect at the start of 2005. Under that new, two-tier plan, the first $9,500 every month results in just a 20% payout, while anything over $9,500 has a very generous 50% payout.

On the bank brokerage side, a re-organization resulted with a number of the reps who had been with its Investment Services Group moving over to its Wachovia Wealth Management Group, a private bank which is not a part of either the retail bank or the retail brokerage unit. As of year-end 2005 ISG had 1,252 reps, and as of mid-year 2006 the total was virtually the same: 1,244.

What has increased substantially in a very short period of time is the total of assets under management and per-rep production, the spokesman says, adding that Wachovia reports those statistics as consolidated numbers for all three units. Between year-end 2005 and June 30th of this year, assets under management increased from $689 billion to $704 billion, while average per-rep production went from $517,000 to $585,000. Those statistics demonstrate that in the mix of broker departures and arrivals, Wachovia is attracting more high-end producers.

Walker says that while the brokers he hires have anywhere from two to 30 years in the business, the average is 13 years. He says that it is not always clear that a broker coming from a full-service firm will opt for Wachovia’s full-service unit because bank brokers receive lower payouts than its full-service brokers – approximately 5% less on average. However, the trade-off is that “they’re in a very client-rich environment” and “able to access a totally different source of assets to help them grow their businesses.”

Walker says that what’s happened “consistently” is that full-service brokers have been able to go into the ISG unit and double their businesses in three to five years. “There’s a very significant ramp-up rate” when full-service brokers join Wachovia’s banking unit because “they understand the brokerage business and how to work with clients.”

“A lot of people say: ‘Oh, those are bank brokers,’ but they have the same qualifications, the same registrations and the same technology platforms and services as our other channels…Probably 99% of what they offer is the same.”

Walker goes on to say, “That stereotypical approach that bank brokers move to bank brokerages, and wirehouse FAs move to wirehouses couldn’t be further from reality when it comes to Wachovia.


Eric Schwartz, the CEO and president of Cambridge Investment Research of Fairfield, Iowa, has noticed a new and growing trend in terms of the advisors who want to join his independent brokerage firm.

While it’s still true that the great majority of his recruits - about 70% - are transfers from other independents, he’s noticed that the percentage coming over from the wirehouses has been steadily increasing—from about 1% or 2% five years ago to about 10% now. Schwartz predicts that “five years from now, it will be 20% or 30%.” It’s obvious that wirehouse advisors are opting for independence because of the pressure to pursue a limited number of very large, high-net-worth clients, however Schwartz points out that there’s a big pool of potential clients in the $250,000 to $2 million range who make up the “bread and butter” of the independent business. Furthermore, he says, “the statistics show that there are an awful lot of assets in the $100,000 to $400,000 range.” By ignoring the needs of the “mass affluent,” the wirehouses “are definitely leaving behind a huge amount of assets, and that’s helping me and my competitors grow rapidly.” Since 2001, the number of reps at Cambridge has more than doubled, from 452 to 927, while average revenues per rep have grown by around 250 percent, from $82,000 to a projected $210,000 this year. Just in the last six months, Cambridge’s sales force grew by another 106 reps. Cambridge’s revenues as a firm have also increased dramatically, up from $37 million in 2001 to a projected $195 million this year, an average of about 40% a year. Schwartz believes that Cambridge’s business model tends to appeal to more mature brokers. Most of the firm’s recruits are between 35 and 55, and most have already been in the business for 15 to 20 years when they join. The advisors who join Cambridge are “not the people who are still seeing whether they’re going to make it in the industry, or whether they like it or not,” Schwartz says, “The people who come to us are going to be in this industry until they retire.”

The attraction for such experienced brokers is the firm’s leading presence in open architecture for doing fee-based business, Schwartz says. When he started his own broker-dealer back in 1981, he was involved in oil and gas partnerships, and he had to have his own broker-dealer if he wanted to underwrite offerings. Five years later another rep joined him, but “it wasn’t like I was out looking for reps,” he says. Gradually other reps who were also selling oil and gas offerings joined his firm to have a place where they could hang their licenses, but they were mostly small producers. “The big ones wanted functionality, and I didn’t have a clearing firm.”

In 1995, Schwartz decided to exit the oil and gas business, and build the broker-dealer operation. “That’s when I started placing small ads in the magazines,” he explains. It occurred to him that he had two options in terms of attracting brokers to what was then a very small firm in Iowa: cater for the people on the fee side of the business who were having the most difficulty, or offer incredibly high payouts. “But I didn’t want to do it on pure price,” he says.

Today, Cambridge can offer 15 different trading platforms, but it also has a low-cost structure where the maximum is five basis points versus an average of about seventeen. However, Schwartz believes that “pricing tends to be secondary.” The difference in pricing is “more definite and more concrete,” he says, “but the real thing that gets them here is our expertise and flexibility in open architecture.”

Allstate Financial Services

Since 2002, Allstate Financial Services LLC of Northbrook, Illinois,

has been aggressively building a new, two-tier system that leverages off its basic business in auto and home insurance to generate leads for a new group of “personal financial representatives” who work in tandem with its insurance agents to sell investment products such as annuities and

mutual funds. “...We do not train from scratch,” says Ed Biemer President of Allstate’s financial services division.

On one level, Allstate has been getting more and more of its insurance agents, who own their agencies, licensed with Series 6 and 63 licenses. As the president of Allstate’s financial services division, Ed Biemer explains, they don’t do the actual selling, but the licenses are necessary so they can share in the commissions if a sale is made based on one of their leads.

In 2002, Allstate had approximately 10,500 insurance agencies; of which less than half, or about 4,500, were licensed to sell investment products. By now, Biemer says, the number of insurance agencies has grown to about 12,500, and over 8,000 of them are licensed.

Simultaneously, on another level Allstate has been recruiting investment reps who, like its agents, are also independent contractors, but “strictly devoted to Allstate.”

On the investment side, “we do not train from scratch,” says Biemer. Instead, the firm has been recruiting experienced reps whose focus is on “needs-based selling rather than a product push.” He points out, “The story we go to the street with is: ‘We have a great source of introductions for you.’”

So far, Allstate has recruited more than 1,250 reps, each of which is assigned to multiple agencies. At the moment, the ratio is roughly one rep for every eight agencies, but Allstate is shooting for a 1-to-5 ratio. “That’s why we still have plans to grow the number of personal financial representatives.”

The next question is: How do you get two sets of independent contractors to work together effectively? Allstate has a very specific system in place for generating the right kinds of leads and forwarding them to its new reps, dubbed the “Allstate Financial Sales Process,” Biemer notes that the system was conceived at the “grassroots” regional level and “built from the field up, rather than from the home office down” by two individuals, D. Mark Olson and Garon Allen, both of whom developed different parts of the system. Last year, both Olson and Allen were promoted, and became national sales directors with 50-50 responsibility for Allstate’s 14 regions. Their first task was to develop the system more fully on a national basis.

Biemer describes the system as “people intensive,” pointing out that over the last six months; Allstate has doubled the number of trainers who work with its insurance agents from 40 to 80.

The system starts with the assumption that Allstate’s insurance customers will call their agents on a regular basis to some degree; for instance, whenever they buy a new car. Biemer says Allstate’s trainers are working with its agents to help them “identify the right inbound phone calls,” and teaching them “exactly which questions to ask” to determine if someone is a good prospect. He adds that the training also involves how to perform “triage.”

“We get a cross-section of America,” Biemer says. “You could get a very high-end client, or you could get somebody who just needs a $250,000 term life policy. The system very quickly identifies whether that person is a multi-millionaire, or has a simple need like term insurance.”

Allstate sold off its variable annuity business, and now uses Prudential’s products on that end. Likewise, it doesn’t have its own mutual funds, so it offers funds sponsored by other companies. Biemer explains: “Where we don’t offer a competitive product, we go out and get one.

“For me, the exciting part of this is that we’re not just saying that we want to capture the value of our existing relationships. It’s that we figured out how to do it.”

Morgan Keegan

“We’ve put a tremendous emphasis on growing our Private Client Group, and it’s paid off,” says John Moss, the director of special projects at Morgan Keegan & Company in Memphis.

Since 2001, gross revenues for Morgan Keegan’s Private Client Group – its full-service retail brokerage unit – have increased 73%, from $171 million to a projected $296 million this year.

The “we” who’ve been putting an emphasis on growing retail includes the Regions Financial Corp. of Birmingham, the bank holding company that acquired Morgan Keegan in April of 2001, when it was an old-line Southern regional that had always been more of an investment banking boutique than a retail firm.

In June of 2004, Regions and the Union Planters Corp. of Memphis merged as equals under the Regions name, and now Regions is about to merge once again with another bank holding company, the AmSouth Banc-orporation of Birmingham. Nevertheless throughout all the changes, Morgan Keegan has remained the entity in charge of all of the combined firm’s investment representatives, whether they’re the full-service brokers who operate under the umbrella of Morgan Keegan’s Private Client Group, or the bank-based brokers who sell annuities, mutual funds and insurance. As Moss points out, within the new combined structure Morgan Keegan is the part of the operation that has overall responsibility for all of the sales activities that require licenses or licensed supervision. He adds that the structure has also helped foster a team

approach that’s raised everyone’s productivity on both the brokerage and the bank sides of the business.

First, there’s the growth that’s occurred in the combined Series 7 sales force because the banks have all had their securities subsidiaries.

When Morgan Keegan became a subsidiary of Regions, Regions merged its Regions Investment Corp. into Morgan Keegan’s Private Client Group, thereby increasing the number of Series 7 brokers in PCG to 782 by year-end 2001, up from 658 a year earlier.

The merger with Planters then brought in another group of Series 7 brokers, increasing the number of brokers in the PCG unit to 826 by year-end 2004. Since then, Moss says, PCG has grown “organically” to 913 brokers through Morgan Keegan’s recruiting and training efforts, and once the merger with AmSouth is finalized later this year or early in 2007, there will be another round of new additions from AmSouth that should boost PCG’s total up to about 1,100 full-service brokers.

Meanwhile, on the bank side of the business, Regions currently has about 200 Series 6 bank brokers, and according to Moss, the merger with Amsouth will add another 500 or so. Also, the number of bankers who are licensed to sell fixed annuities will just about double to 2,100-plus. “The licensed bankers are an essential bridge between the two cultures,” he says. Of course, the bank brokers are an important source of referrals for the brokerage side of the business, but Moss says under the system that’s now in place, there’s a team approach where each bank broker is assigned to a specific Morgan Keegan rep so if there’s a question from a customer that’s “beyond the rep’s capabilities or comfort, there’s a second set of ears,” The system is “not casual,” he says, “They know who to call.”

Moss points out that Morgan Keegan is growing, not only through acquisitions, but also through recruitment and training. What’s survived is not just the Morgan Keegan name, but also the corporate culture of a regional. “We managed to stay who we were while trying to become who we wanted to be.” At a time when many of the other regionals have been merged into larger firms with a big-firm culture, Morgan Keegan has become “a destination firm” for experienced brokers “from all over the country, seeking a good regional experience.”

Despite the fact that the firm’s geographic reach has been widening with each of the successive bank mergers, Morgan Keegan has managed to keep that small-firm feel. “With the Union Planters transaction alone, overnight, we acquired a brand new and substantial presence in St. Louis, Indianapolis, and Miami,” Moss says. Meanwhile, the merger with AmSouth will “just transform” Morgan Keegan’s presence in some of the other major markets in Florida, like Tampa and Orlando. Right now, “we have one broker who’s resident in the Orlando area and nearby to Tampa,” he says.

While many other brokerage firms have cut back on or eliminated their training classes, Moss says he’s not willing to surrender the training of the next generation because “that’s an entirely different talent pool.”

Last year, Morgan Keegan hired 50 new trainees, and this year it expects to hire 100 more. As Moss points out, “Brokers don’t come out of chicken farms. You don’t hatch brokers; you have to grow them.” He adds that he “deplores” the tendency in the industry to cut back on training during down cycles. Training brokers from the start of their careers makes for “a loyalty factor that’s hard to quantify,” Moss should know. This spring, he celebrated his twentieth anniversary with the firm.

Commonwealth Financial Network

The Commonwealth Financial Network has long enjoyed a reputation

as one of the fastest-growing independent brokerage firms.

“Other disenfranchised financial planners would see Commonwealth

as a breath of fresh air” and join Joe Deitch.

Going all the way back to its inception in 1979, it has boasted an average annual growth rate of around 40%, and the firm shows up consistently year after year in all of the magazine rankings of the top independents.

In the recent past, the size of its sales force has increased annually. At the end of 2005, it reached 1070, up from 966 a year earlier. However, over time Commonwealth has gained another distinction by managin to retain its status as a freestanding independent while many of its competitors were being acquired, including LPL. With $313 million in annual revenues in 2005 and about $36 billion in assets under management, Commonwealth now ranks as the largest purely independent brokerage in the U.S., with representatives in all 50 states, and with headquarters offices on both coasts, in Waltham, Massachusetts, and in San Diego.

True independence has certain advantages that help to attract experienced advisors to the firm, says Joe Deitch, chairman and CEO. Deitch is the firm’s founder, and one of the eight senior partners who’ve been with the firm for at least 15 years.

He says that one of the firm’s big draws is that since it’s not owned by a “product manufacturer” like an insurance company, it doesn’t have the same potential conflicts of interest.

Deitch has a very definite view of Commonwealth as a “safe haven” where advisors and their clients are free from such conflicts. On the firm’s website in “Our Story”, he explains how he came to start the company after being with another broker-dealer where conflicts of interest became an issue. He decided that, “other disenfranchised financial planners would see Commonwealth as a breath of fresh air” and join him. He was right. Even now, he points out, “the majority” of the firm’s new hires are transfers from other independents.

It’s also true that complete independence means that the firm doesn’t have to stick with a budget established by a non-brokerage parent company, and it doesn’t have to answer to public shareholders. It’s free to spend its money as it sees fit, particularly when it comes to one of its points of pride, its technology. “Our average expenditure on technology is $10,000 per advisor per year,” says Deitch. “We are always consciously focused on how to raise the bar on our service to our advisors through our technology, our infrastructure, and everything we do.”

On June 1st, Commonwealth also raised the bar on the minimum production needed to join the firm to $200,000 in gross broker-dealerconcessions. Previously, the official minimum was $100,000, though Deitch claims that “unofficially,” the real number was $150,000.

Nevertheless, Commonwealth is not short of potential hires. “We turn away about 40% of the people who want to join us,” Deitch says.

“If we wanted more numbers, that would be easy to do, but we’re absolutely not looking for warm bodies. We’re very concerned that our people fit into the Commonwealth culture.” Hence Commonwealth is willing to refund a new hire’s transition costs if it doesn’t work out, using a measure of up to 10% of the rep’s 12-month trailing gross.

“Essentially, we want to put their minds at ease,” Deitch says. “Choosing a new broker-dealer is a huge decision. There’s a fair amount of work involved, and it also means transitioning all of the clients,” He adds, “We treat people with respect, and unfortunately that’s unusual.”


“There’s a thread of discontent running through the industry,” says

Brian Murphy, the president and CEO of Woodbury Financial Services, the Woodbury, Minnesota-based independent broker-dealer that has been a subsidiary of The Hartford Financial Services Group since 2001.

Before its acquisition by The Hartford, the broker-dealer that became Woodbury was known as Fortis Investments Inc. of Boston. Fortis had “a lot of people producing a little bit of business,” including a number of part-timers who were producing less than $20,000. In fact, Murphy says, in 2001 the average per-rep number of gross broker-dealer concessions was just $40,000.

This year, as of mid-year, the per-rep average was $107,000, and Murphy is projecting a slightly higher average of $110,000 by year-end. He’s also projecting that the firm will end 2006 with about $200 to $210 million in revenues, more than double the $97 million it booked in 2001. Furthermore, product sales topped $2 billion in 2005, and should top $3 billion this year. Nevertheless, if you were to compare the total number of reps the firm had in 2001 to its total today, it would appear to be roughly the same—at around 1900; but in-between, the turnover has been extensive – about 60%. Murphy says that last year’s recruits brought in “proven gross dealer concessions of $27 million,” and as of June, “we had already matched that number, and we’re on our way to $50 million for the full year of 2006.” This year, Murphy expects to grow the sales force by about 10%, or another 190 to 200 reps.

Murphy says that Woodbury is also attempting to grow geographically, whereas, Fortis’ operations were centered in the Ohio Valley and stretched through the Rockies. Woodbury has grown well in the West with California becoming its No. 2 state in terms of gross dealer concessions.

Now the firm is hoping to grow more in the East in the area near its Connecticut-based parent. To that end, last year Woodbury added four more regional sales directors: in New England, New York, New Jersey, and Washington, D.C., bringing the total number to 40 on a national basis.

All of Woodbury’s reps are independent contractors, and they’re experienced advisors, who usually have at least 15 years in the business and an orientation towards financial planning, Murphy says.

Asked what would attract such advisors to his firm, Murphy says Woodbury is concentrating its efforts on “customer intimacy. Our reps are our customers and we want to know them.”

“There are really only three ways to differentiate yourself,” he says. The first is product innovation, but “since we’re a broker-dealer and we put other people’s products on our shelves, our ability to differentiate ourselves in this area is a little constrained.” The second is “operational excellence.” Murphy says that while the firm certainly needs to be efficient and accurate, “what we’ve found over the years is that it’s a dissatisfier to the reps if you don’t do it right, but it’s not a delight to them if you do it well.”

Hence, management is focusing its efforts on fostering a culture that makes its reps “feel that they’re part of a family,” while also creating a stimulating environment that encourages its reps “to keep their saws sharpened, and to open their minds to alternative ways of running their practices, or to alternative markets,” he says. The firm sponsors about 40 workshops every year. Each includes “plenty of informal time” so that people can get to know one another and share ideas.

Woodbury also has a program called “Loyalty Pays” which Murphy believes might be unique in the industry.Once reps have been with Woodbury for seven years, so long as they meet a minimum production target of $30,000, if their current production falls below previous levels, they could be eligible for a higher payout based on a three-year look-back and their length of service with the firm.

Murphy explains that this is referred to as a “shadow payout.” The firm “runs a shadow payout on every rep who’s been with us for seven years or longer,” to create a baseline minimum on a rep’s payout. “When a rep gets older and wants to spend part of the year in Florida or Arizona, it ensures a floor payout” that’s based on the rep’s long-term rather than current production.

“This absolutely tells the reps who built us how important they are to us. Our advertising line is: “We know our reps,’ and we really do,” he says, noting that six of the firm’s reps had just called him, not on business issues, but to wish him a happy Father’s Day.

Rosalyn Retkwa is an award-winning freelance investigative journalist. She has been covering the financial industry for over 25 years and has written for among others, The New York Times and Institutional Investor.