Friday, February 6, 2009

Going Independent - Interview Transcript (Brackett, Hubbard, Chiara, Swift)

Marie: Hello and welcome to “Best Practices in the Financial Services Industry.” Today is December 22nd, 2010 and you are joining me, your host, Marie Swift.  I have with me today three accomplished people in the financial services industry, and we’re going to be talking about “Going Independent, Things to Consider Before Making the Move.”

So let me introduce our guests today.We have three individuals with Financial Network, one of the largest independent broker/dealers in the United States.

John Bracket  |  Dave Hubbard  |  Cheryl Chiara

Listen to the 22 minute podcast instead of reading the transcript!

First we have John Bracket. John is a partner at Bar Financial, LLC. He’s based in Pleasant Hill, California just outside of San Francisco although Bar Financial is a national firm with offices across the country. As a regional director for Financial Network, John leads one of the largest regions with over five hundred representatives.

Next is Dave Hubbard, president of Exemplar Financial Network, located in Crystal Lake, Illinois just outside of Chicago. Now Dave is also a regional director with Financial Network and has over two hundred representatives in his region. Dave has also been recognized by On Wall Street magazine as one of the top branch managers in the nation, and there are offices throughout the Midwest under the Exemplar Financial Network name.

Cheryl Chiara is senior vice president and head of sales and business development for Financial Network at the corporate office in El Segundo, California. So welcome everyone and let’s get started.

You know, I’ve been doing a lot of speaking and writing in the industry and it’s no surprise that we’re here today talking about going independent and the things to consider before making the move. Due to all of the scandals on Wall Street, the big brand wire house names, the big brand name banks; they’ve experienced the slow leak and an erosion of trust. Tiburon Strategic Advisors do a lot of research in and around the industry and their research shows that the big brands are not gaining market share as rapidly as the independents are. In fact, they are showing that advisors affiliated with independent broker/dealers are growing. Their assets are growing at 14% annually on average ever since 1995, where the best estimate for growth for wire house assets is about 9% per year. We are seeing a slow leak from the wire houses and a movement toward independence.

Bob Veres who is also one of the leading prognosticators and visionaries in our industry says that that slow leak will continue and that independent advisors are well positioned to gain market share. In fact he says that there is evidence that more Americans will seek the advice of a financial advisor in the next 10 years than in any previous decade and that the next decade could offer the greatest marketing opportunity in the short history of the profession. Bob has written this white paper on the future of the profession and he talks about this dramatic increase of the number of clients who are going to be seeking an independent advisor.

So I’m very pleased that we have John and Dave and Cheryl here today to talk about what they have learned over the course of their careers working with and helping independents grow their business and also transition from more of a captive environment to an independent environment.

John, I would like to pose the first question to you. If you could just give us some of the high level points to consider when thinking of starting an independent advisory practice in order to optimize the opportunity for success.

John: Thanks Marie. At Bar Financial we have the advisors focus on what we perceive to be the two most important areas before they make the decision of whether to go independent or not. One of the most important things is to consider why. Why is the advisor considering going independent?

Second, is what will the advisor be giving up in both perceived and actual hurdles of obstruction?

The first area to think about is why. In the why, the answer generally is control. What does the word control mean? In the area of advising clients, control is the direction that the advisor is going to take for the client, the products that the advisor is going to use with the client, and the cost structure of how that advisor is going to bill for their time. In that last point, what we find at Bar Financial is one of the most troubling areas for an advisor. How much is the advisor worth? Typically, through that advisor’s career, some outside entity, whether it was the brokerage firm, the insurance company, or the mutual fund company have told the advisor what they are worth. We spend a tremendous amount of time at Bar Financial helping the advisor put that schedule together.

The last thing they consider as to the why, is the ownership and the legacy of their business. Typically what we find is that the advisor wants to own. The term you hear is controlled destiny. What we like to infuse into the thought process is the legacy of their business and what happens after that advisor reaches retirement and what happens with the business at that point; whether it transfers to another advisor, maybe it is a spouse, maybe it is a child of the advisor that has come into the business and now has reached the position where they are prepared to give financial advice to clients.

The perception of the hurdles that have to be considered are things such as the name that they will be giving up. Most of the time, the advisors believe that because they are using the big brand name, that’s why the clients are coming to them. In reality, the clients have chosen that advisor because they feel that advisor is most linked with them in the thought process as to how to reach goals.

The next is the cost and the cost is factored around many items, such as what kind of contract does that advisor presently have? Was there retention money paid to that advisor at the firm that they are presently at? What does rent cost? What does a phone system cost? How about support staff? So at Bar Financial we sit down with the advisor and discuss with them why they are doing it, where they are trying to go and how they’re going to get there.

Marie: So Dave, it can be pretty scary to jump off the luxury liner and start rowing in a boat all alone. What are some of the options for someone starting their own advisory practice?

Dave: Marie, you’re absolutely right. There can be a scary process and let me add that I agree with everything that John Bracket just said. I’ve been independent for 25 years.  The first five years I was in this business, I did work for a captive firm and in those 25 years I’ve learned a lot.  What I find is that a lot of the advisors I’ve talked to over the years about going independent, and I’ve talked to hundreds and hundreds of them, is that they don’t know what they don’t know.  And that’s a problem.  They decide they want to go independent, they want to run their own business, they want to control their own destiny and quite often, they don’t even know the questions to ask.  So they tend to seek out who is advertising in the magazines, who are the leading independent firms, who have the highest payout.  They pick up the phone, they call them and get their recorded materials and then they start to learn about what it’s going to be like to be independent.

Most of the big firms in our industry have a home office somewhere and all of the advisors are scattered across the country and they deal with that home office on a long distance basis.  And for some people, that’s fine.  They make their own way, they learn as they go, they don’t mind making a lot of mistakes, but at the end of the day, they are typically a little fish in a great big ocean.  Here at Financial Network, the one thing that I like, that brought me to Financial Network and has allowed me to grow our organization of about 200 advisors is that we’re really not a little fish in a big pond.  Financial Network is one of the largest broker/dealers in the country but it is divided up into regions and so John and I are two of thirty regions where we are really the in-between point, helping those advisors that want to be independent but they don’t want to be alone.  So we can act as their tour guide.  We can help them and counsel them on what it’s going to take to be an independent, to transition their business.  We have a staff at Exemplar that holds them by the hand and will help them through every step of the transition process for the first 6 months to a year and after that, we have a staff that is there at their beck and call to help them as crisis come up in their practice, or they need knowledge or education and I think that’s very important.  If someone is going to go independent, it’s like any other business.  If you decide you want to open up a hamburger stand, you can put your own name out there and be Joe Smith’s Hamburgers, or you can go with one of the big franchises and they will lead you by the hand and show you exactly what you ought to do to be a success in business.  Statistics show that those businesses that have a guide, that have somebody that will show them the way, will be far more successful.  So that’s what we try to do at Exemplar Financial Network is to be their guide and to help them in making their business decisions.

Quite often the advisor that wants to go independent is shopping firms and they get fixated on the payout.  What’s the payout?  What’s the payout?  Perhaps they felt they weren’t being paid enough at the wire house.  We try to focus them on not what the payout is, but who is going to be the firm that is going to provide them with the most amount of dollars, net after tax, for them and their family so they can achieve their own personal financial goals as well as growing their business.  You can’t spend a payout percentage, you can only spend dollars.  So once we get the advisor thinking about that, we then have them talk about their business and their goals.  And by the way, Financial Network is one of the highest payout firms in the country so we’re not talking about taking less payout, but it’s focusing on the right things where dollars will be spent.

At Exemplar Financial Network, we want to be our advisors’ partner; that their success will be our success.  So we’ll sit with them, we’ll help them with their marketing plan, we’ll help them with their business plan, we’ll talk about where they want to be in two years, in five years, in ten years down the road.  We’ll talk about, as John mentioned, what about their ultimate transition out of the business or transition to successors.  If they have children, that might be one game plan.  If they have junior partners, that’s another game plan.  Or perhaps they don’t even have junior partners, so right now we are working with half a dozen of our advisors that have said, “Hey Dave, I want to transition out of the business at some point in the next 3, 5, 10 years.  Can you help me get a junior partner?”  So we’re able to do the interviewing, deliver them people to talk to, hopefully make that fit and we’ve done that dozens of times in the past to help our advisors have a smooth transition as they leave the business.

The important thing to remember here is that not all independent practices are alike.  Each advisor is going to want to do things a certain way.  I think it’s good for them to have somebody that can help them avoid the pitfalls.  Quite often that’s our value, that we help them to avoid mistakes and some of those mistakes can be quite costly.  We can also be a voice for them, and both John and I have served on committees at Financial Network and voiced our concerns to management and made sure that the broker/dealer is in fact delivering a set of services to the independent advisor that will be beneficial to their practice.  We can help keep the ivory tower thinking away.  And we find that as we’ve talked with a lot of the advisors that are leaving the big brand name firms, that’s one of the things that’s frustrated them.  They don’t feel they have a voice in management; that management will make a decision that will be adverse to their business and they are just stuck with it.  It’s a like it or lump it type of scenario.

In our firm that doesn’t happen.  There’s always a lot of dialogue, there’s give and take.  I can tell you in twenty years I’ve been with Financial Network we’ve never had a single decision that’s been an abrupt left turn.  There’s always been dialogue, there’s always been advanced warning and basically, most of the decisions that are made benefit the advisor not detrimental to them.  So again, it’s a very good process that we have here and that’s why we decided to stay here.

Financial Network has gone through several ownership changes.  We’ve just become independent and we have 90 of our regional directors and field advisors that are part owners of the firm.  We’re in a good place, we believe, to grow and to represent our advisors and help our advisors grow their practice.

Marie:  John, would you like to underscore anything that Dave just said?

John:  I think that Dave did a great job in designing and explaining the Financial Network regional system.  In addition to everything that Dave did say, the focus from the region is not only helping put advisors in business, helping advisors stay in business and transitioning out of business, but through that process we utilize the training method and the leading method of helping the advisors move through the natural process of becoming that expert in their area of focus.  I think that Financial Network is uniquely positioned to provide that service base through the independent advisor.

Dave:  And Marie, if I could underscore some of what John is talking about.

Marie:  Sure.

Dave:  It’s very hard to be all things to all people and quite often financial advisors find themselves in that position.  They’ve got clients who are small business owners so they have to become an expert in everything small business, such as retirement plans, benefit plans, etc. as well as doing the asset management and the insurances and the whole nine yards.  And that’s a shame, because I think if we looked at the medical industry and if we said you can have one doctor that tried to do it all, we would probably say he is committing malpractice.  Here at Financial Network, within the regional system that we have, we can allow people to specialize.  For instance, I’ve got advisors that do nothing but qualify plan work, or advisors that do nothing but insurance and sophisticated executive compensation business, or advisors that just want to manage money, or advisors that are very good at marketing and they want to bring in the clients, but they want somebody else to service the clients.  So what we are able to do is put together teams of individuals each of whom are independent, they all run their own business, but we allow them to do joint work, we have that process smoothed out over twenty years of doing this, that at the end of the day, the client is best served because they are getting a complete set of services, they’re working with the best advisors that have the most knowledge, and the advisors work as a team and at the end of the day they are all successful.  Instead of being in competition with each other, they work cooperatively with each other.  I really believe that we are the firm that is unique in the industry that brings that set of services to the table.

Marie:  Well Cheryl, I want to get you talking here and I know you’re not sitting in an ivory tower in El Segundo.  I’ve been to your office and I know you’re out in the field a lot working with the advisors in the regions, so could you address the Financial Network perspective?  What are some of the additional benefits that Financial Network offers independent advisors from the corporate level?

Cheryl:  Sure Marie.  I would have to say that I think we offer the best of both worlds.  You know we have all the resources of a top-10 national firm, but they’re combined with the local teams like Bar Financial and Exemplar Financial Networks so that you get that local, hands-on support.  So of course we have a full wealth management platform with our research and advanced planning and advisory services, we’ve got marketing programs and resources; we’ve got the cutting edge technology and the paperless office system, professional development opportunities all year and of course practice management.  But these go completely hand in hand with all of the guidance you’re going to get with a regional system.  I will say that I do think we take a different take on practice management.  I think that here we consider the business of running a business and it really kind of supports the independent practice because we show advisors how to build, optimize and realize value in those businesses. 

So let me explain a little bit about that.  In terms of building that business, we show them how to business plan for it, conduct business development and also help them with sales skill development if necessary.  As it becomes a more mature enterprise, we want to show them how to streamline their operations and hire and manage good staff.  And then in that phase, we also find that sometimes they reach the limits of organic growth and perhaps a practice acquisition is more helpful to their business and so we can help them do that as well.  And then finally, probably one of the hallmarks of going independent is realizing the value in your business and we can help them do that in a variety of ways.  One of them of course is help with succession planning or the proper sale of their business.  So I think that’s probably what makes us unique in the independent space is our partnership with our regional structure in delivering all of those resources as well as providing hands on guidance.

I would say too, that once an advisor is ready to go independent, we are very skilled in helping them do the prep work for that.  There are a lot of considerations to be made in the time leading up to doing it, but once they are ready to go, we have a very tailored plan for them at that point.  I would say most importantly, we provide guidance in securing client relationships while remaining in compliance with employment agreements and privacy regulations.  You’ll need to honor all of the agreements you have, but we tailor a plan specific to your situation and we can provide for successful business transition. 

Marie:  Well this has been a wonderful conversation.  I know I’ve learned a few new things today and I’ve been in business for 23 years and I always enjoy listening to and hearing from accomplished people like you folks.  But in closing, I would like to just go around the table and ask for any final words of wisdom and let’s go in reverse order.  Let’s go Cheryl and then Dave and then John, and then I’ll close for today.  Cheryl?

Cheryl:  Sure, I would say, Marie, that in terms of being a financial advisor today, I think you are remiss if you are not looking for what value you can build in your business and how you can realize that whether that be leaving a legacy or that be realizing it in terms of dollars or in sale or value to you or your family.  So I think here between our regional system and our home office that we provide all that guidance and help you get there and reach that level of success you’re looking for.

Marie:  Dave?

Dave:  Yes, Marie.  I would just like to close by telling people that I understand that decision to go independent, to take the step out of the employee ranks can be quite daunting and quite scary.  My advice would be for people to do it.  I think that at the end of the day they will be happier, they will control their own destiny, their clients will be better served, they can focus all their attention on doing what’s right for the client and the advisor building their practice.  That being said, the thing that’s less scary I think is associating with a firm like Financial Network and one of our regions that can provide somebody the best platform to be independent but not be alone, avoid a lot of mistakes and have the best chance of success in the near term.

Marie:  And John?

John:  Thanks Marie.  I would like to echo just the things that Dave said and that Cheryl said.  Going independent is a worrying time; however, it is setting the ground for a legacy of your thought process and your vision on how a business should be run and how money should be managed for the benefit of the client to help them reach their legacy.  The regions within Financial Network such as Exemplar and Bar are the local hands-on support mechanism to help you establish goals and then reach those goals.

Marie:  In closing, let me just give some websites so that our listeners can learn more about the people who have been speaking today.  Cheryl Chiara, you can reach Cheryl through her website, For Dave Hubbard, you can reach him through his website, And for John Bracket, you can reach him through his website,

Well thank you everyone. I look forward to seeing you all in the New Year at our next opportunity for another round table. Goodbye now.

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