It's a two-hour drive from the Des Moines airport across flat farmland before you reach Fairfield, Iowa (pop. 10,000). Once there, you can drive through the town square, have coffee at a diner and see the small-town narrative come to life. This is not New York or Boston, and there is no financial district to speak of. You can then leave the diner, turn onto Pleasant Plain Road and drive a little farther to your destination. Surrounded by nothing but miles of farmland are the offices of Cambridge Investment Research, a pioneer of the hybrid advisory model.

When you are a major broker-dealer with offices two hours from the nearest airport, location will be a part of your story. And so it is with Cambridge, which should pull in about $250 million this year. The firm has been influential in moving the industry toward embracing a fee-based advisory business, and it has succeeded in the unlikeliest of places.

"Early on, it worked against us because people thought we were too small to survive," says Eric Schwartz, CEO and chairman of the board, who founded Cambridge's predecessor broker-dealer in 1981. "Now that we've become established, it's been a positive thing for people who have similar values. Our advisors are located all over, and where they live and where their clients live is not that different from Fairfield."

LOCATION, LOCATION, LOCATION

Amy Webber, president and chief operating officer, joined Cambridge and moved to Fairfield from Phoenix 11 years ago. Because she and her husband have Midwestern roots, the move wasn't necessarily a culture shock; and with plans to start a family, it made sense for them to be closer to home. Even still, Webber knows that many of her industry peers probably saw the move as a bit perplexing. "After all those years, I was willing to walk away from a big city and join a small firm like [Cambridge]," she says. "People thought I was crazy It's different today. People know who we are now."

The rural locale serves as more than a colorful backdrop to Cambridge's history. The company's executive team speaks of the unique culture created by maintaining its headquarters in a small Iowa town.

More important, location has been a critical aspect of how Schwartz built his business from a half-million-dollar broker-dealer to one of the top 20 independent B-Ds by revenue, according to Financial Planning's 2009 Survey of Independent B-Ds. Nowhere has this been truer than in the growth of its trailblazing hybrid advisory model.

Schwartz says, "One of the biggest benefits [of being in Fairfield] has been financial." Because he had to split revenues with a custodian, the hybrid model generated thin margins. Schwartz estimates the firm's overhead has to be between 20% and 40% lower than other firms to "pass along those benefits to our advisors."

He says the 7% margin Cambridge has averaged over the last two years would have dropped to 1% or 3%, had it been headquartered in a big city. The company would have been forced to cut back on its service and technology offerings. Competitor LPL, for instance, gets its advantage from its sheer size, whereas Cambridge's advantage is geographical. "We're investing as if our revenues were a billion when they're only $250 million because our investment goes a lot further," Schwartz explains.

O PIONEERS!

Despite his reputation as a pioneer of hybrid advisory, Schwartz insists that he had no grand vision about the fee business. But a disproportionate number of advisors began calling him in search a B-D flexible enough to handle it. From the feedback he was hearing in 1992, Schwartz sensed that a business opportunity might be falling into his lap. He was also looking for any advantage to distinguish himself from more established firms.

"It occurred to me that maybe [fee service] was an angle I could do differently. If advisors just wanted to sell load mutual funds, stocks and bonds, why were they going to join a small broker-dealer in Iowa when they could join any number of independent firms?" Schwartz says. "Competing head-to-head with a firm 50 times my size was difficult."

Three years later, in 1995, Schwartz realized that half the reps at Cambridge had joined because it was flexible about fee business. His broker-dealer had grown to be a $4 million firm by that point, and Schwartz knew then that he had a brand. From 1992 to 1995 the banner ad that Schwartz used for Cambridge was "Responsive Broker-Dealer." In 1995, he changed it to "The Fee Experts."

HYBRID HYPE

The hybrid market is one of the fastest-growing segments of the advisory industry. The 2007 National Financial Broker and Advisor Sentiment Index found that nearly three-quarters of all brokers and advisors operate a combination of commission- and fee-based businesses.