FP 50
The Biggest & Fastest-Growing Independent Broker-Dealers, 2008

This hasn't been an easy year, and as we publish Financial Planning's 23rd annual broker-dealer survey, economists and politicians are noisily hanging a sword over our heads. Among executives at independent broker-dealers, though, there's little talk of peril. Are broker-dealers concerned about the markets and the economy these days? The answer is obvious to anyone who goes online each morning and reads the daily headlines. Does the prevailing sense of danger mean that opportunities abound for the intrepid? Probably, according to industry executives, who generally see bright prospects ahead.

Despite the unrelenting bad economic news over the past year, the condition of broker-dealers today is far from critical, especially when you compare 2007 and 2008 with down years in the past. "In 2001, broker-dealer revenues fell by around 30%, which was followed by another decline of around 10% in 2002," recalls Philip Palaveev, president of Elmsford, New York-based Fusion Advisor Network and a former principal at Moss Adams. "What we've seen in 2008 is not even close, in terms of lost revenues."

Saying that 2008 has "not been that bad so far" might seem to be damning with faint praise, but Palaveev contends that's not the case. "In 2007, most broker-dealers had a fantastic year for revenues and profits," he says. "This year has largely been flat. That's not great, and expectations may have been higher, but broker-dealers have no real complaints about 2008."

Stable Clients, Stable Income

Overall, the financial services industry has been "ravaged with layoffs and cutbacks," as Bill Dwyer, president of LPL Independent Advisor Services, points out. Several household-name companies, such as Merrill Lynch and Wachovia, have reported huge losses. Why have independent B-Ds held their own in 2008, after suffering through the turn-of-the-century tumble?

One reason things are better this time around is the increased role of fees in advisors' compensation, according to Palaveev. "Fees are more stable," he says. "They don't disappear in a bear market, as can be the case with commissions."

Advisors' and investors' mentality is also different in 2008. "In the late 1990s, many advisors were chasing returns," Palaveev says. The crash of 2000 to 2002 had severe consequences for those who had loaded up on tech, media and telecom stocks. Consumers got educated by the boom-and-bust cycle. Today they have more diversified portfolios, so people were less vulnerable to the steep sell-offs in financial and real estate issues, where damage has been the heaviest.

Palaveev also notes that mattress-stuffing has not been a common reaction now; that is, clients aren't pulling out of stocks to load up on fixed-income instruments. That may be because of credit market turmoil and low yields on cash equivalents. Whatever the reason, he sees more staying power among financial planning clients, which has caused increasingly important advisory fees to hold up, providing steady revenues for B-Ds.

Friends in Need

Although clients are maintaining their holdings and continuing to invest regularly, it's also true that many consumers are concerned about the current financial environment—and their anxiety may create immediate opportunities for financial planners as well as their B-Ds. "The best time to talk to clients is when times are tough," says Enrique Vasquez, president and CEO of Genworth Financial Investment Services. "That's when we need to be in front of clients in order to do our job. This is an exciting time with great opportunities, if we can provide our clients with comprehensive wealth management solutions."

In fact, planners may find it easier to initiate calls these days. "Now, reps have a good reason to reach out to clients," says Steven McWhorter, president and CEO of Securities America. "They can say that it's time for a portfolio review, to evaluate how a client's holdings match that client's risk tolerance."

Larry Roth, president and CEO of AIG Advisor Group, agrees. "The consensus among our reps is that this is a fantastic time to be an independent financial advisor," he says. "Markets are volatile and clients are concerned, so they call advisors. In this environment, clients are more likely to understand why they need advice, rather than [managing investments] themselves."