Just five months ago, Advisor Group - one of the largest independent broker-dealer networks and a division of AIG Financial Distributors - made a prominent announcement: Erica McGinnis would be its president and CEO, making her one of the most powerful and prominent women in the planning industry. The insider candidate had served as the company's chief compliance officer; she took over as a brew of trends - from demographic, regulator, competitive and more - have been roiling the business.

The 42-year-old executive spoke with Financial Planning about the broader shifts and her own agenda for change. Below is an edited version of the conversation.


You're still relatively new to the job. What has most surprised you?

I've been at Advisor Group for 10 years and I've been part of the senior leadership team for the last couple of years, so there isn't change there. But I've been spending time in areas that I just sat on the periphery of. I'm coming to understand what our financial model looks like, what the recruiting environment looks like, understanding our opportunity for sales.

I've really been getting into the weeds: How have we approached these issues in the past? What has been our recruiting strategy? How can it be more successful? What should we do in the areas of organic growth? How should we change those strategies?


What are your priorities?

Our big goals are around recruiting. We've spent a lot of time focusing on one-by-one recruiting: rep by rep, branch by branch. And that is hugely important. But the cost of recruiting is going up. We need to have an acquisition strategy.


What would be the target size?

It could be 100 advisors up to 500 advisors - something that could integrate into one of our existing brands. We're still a culture that wants to recognize its four brands.


What makes those brands distinct?

Royal Alliance is based in downtown Manhattan. Its supervisory structure is different from our other broker-dealers. Think of it as being made up of very large OSJ structures. It's almost like having a broker-dealer made up of a lot of small B-Ds.

Woodbury, which is based in Oakdale, Minn., does not have a field-based OSJ structure. The vast majority of the reps in the field report directly into the home office. And I think that that is a great model to recruit to in this environment, where compliance becomes more and more burdensome and costly. The OSJ manager could come in, bring the group and offload that supervision back to the home office; then the advisors do what they really love to do. Most people don't get into this business to become a Series 24 OSJ manager.

SagePoint is a melting pot. It grew out of mergers of a lot of firms that were insurance-based broker-dealers. So a lot of the reps at SagePoint enter the business through the insurance channel.

And FSC is kind of a quiet broker-dealer. They actually have the highest average GDC per rep within Advisor Group. They have a long-standing culture, advisors with long tenure and a lot of multigeneration practices.


Why keep those brands separate?

It's the advisors who are affiliated with those brands. They're independent; they get to choose who they want to affiliate with. And they have chosen to be with a broker-dealer of that size. They have direct access to their president and the president's immediate team of people. They haven't chosen to be at a firm where they're one of 12,000 advisors - and I think that that's important.

If we merged the brands, we would lose a level of intimacy that our advisors have come to expect.


Do you worry that you're losing the efficiencies of scale?

We have scale in the back office. We have about 800 people who are home office employees. And the majority of them are what I would call an Advisor Group employee - they serve all four brands at the same time.

One example is the compliance team that goes out and conducts audits. Because we have a consistent set of policies and procedures, an examiner can walk into a SagePoint office on Monday and an FSC office on Tuesday, and the exam protocol is the same. That's what gives us our scale, and that's what allows us to maintain four separate brands.

At the same time, you know I don't think that a SagePoint by itself would be able to have the same kind of technology offering. I think the scale allows us to deliver really great technology to the field and have good platforms that a smaller broker-dealer by itself wouldn't be able to support as easily. So I think it's really the best of both worlds.


What are some of the big macro trends you are focused on?

Well, the broker-dealer industry is contracting. Coming from compliance, I understand why. It's increasingly expensive: For every regulation they dream up, it's not like they're taking one off the books because it's old and antiquated.

Also, I'm really worried about where the next generation of advisors is going to come from. We have a women's program, but it can't just be recruiting women into the business. The wirehouses have abandoned their traditional training models - and that's really what helped independents thrive; we could recruit wirehouse advisors who had already been trained.

I think that ensemble practices are really the wave of the future. Some people are rainmakers - they love going out and gathering assets. Some are analytical; they should be on a CFA track. Let them manage money or build portfolios. And then bring on a new person - someone who's fresh, brand new to the industry - and let them service accounts before you teach them how to bring assets in.


And the shift toward fee business?

About half of all of our reps are dually registered as investment advisors. I think that they are able to offer clients more diversity. As you get to that higher-net-worth client, fee-based may be more appropriate for them.

Our analysis shows that the advisors who are dually registered are 25% more profitable than those who are registered reps alone. So what makes sense for the end client also makes the best sense for the financial advisor and the broker-dealer. Because we're independent, we're never going to create some kind of quota or force people into that line of business, but we think that there's a real opportunity there for organic growth.


How does your compliance background affect your thinking in your role as CEO?

I think, at the end of the day, there's an element of risk management that's in everything that we do. And if you don't have a healthy appreciation and respect for the rules, all it's going to do is put you out of business.

I think advisors expect transparency. If you can't explain why the rules are in place, they feel like you're hiding the ball. So I think that growing up in compliance - not being one of those people who just simply says, "Well, it's that way because it's in the rule book," but really being able to understand where it comes from - is helpful.



Rachel F. Elson is executive editor of Financial Planning. Follow her on Twitter at @rachel_elson.


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