David R. Evanson

The Career Advisor, Fall, 2004

And so it is that the debate on size, which occurs in every realm of human endeavor, is now applied to broker-dealers. The question becomes for financial advisers, are you better off hitching your wagon to one of the larger broker dealers with size and scope or a smaller, perhaps boutique shop that offers the opportunity for a more personalized relationship?

It’s worth noting right off the bat that there is no empirically correct answer to this. The decision is strictly a personal one. If one solution was over-archingly superior to the other, then we would have a market which consists of all larger B-Ds or all smaller B-Ds.

It’s also safe to say that financial advisers can and do make the wrong choice. How else to explain the continuous ebb and flow of advisers from one camp to the other? Thus, the very best that we can do for you is to provide some context and perspective on various aspects of financial planner/broker-dealer relationships and what larger firms, as well as their smaller brethren, bring to the table.

Technology. If technology means a lot to you, go big. They’ve got loads of it. For instance, according to Jim Putnam, managing director of national sales at LPL, “We spend $140 million each year on technology, which could be more than a smaller firm spends in a decade.”

Of course technology combined with size cuts both ways, says Jim Baldwin, director of recruiting for Chicago-based LaSalle St. Securities, a firm that, based on 2003 revenues, is less 5% of the size of LPL. “Technology can sometimes get in the way of real relationships. With a firm like ours, it’s more likely you will interact directly with someone, whereas with a larger firm [driven by technology] your directives and interaction is most likely to be electronic.”

Responsiveness. Speed and quality of response are not generally characteristics that can be ascribed to large or small firms per se. Where lines can be drawn however is responsiveness as it relates to changes, upgrades or enhancements to the services that you want to offer your clients. How quickly can a firm respond to very specific or out-of-the-ordinary requests that you make?

Here, smaller firms may have an edge. According to LaSalle’s Baldwin, “We are a smaller ship and can turn more quickly when it comes to offering enhancements. We are more nimble in terms of what we can do in terms of new products and new methodologies. When a product comes out, say a variable annuity with a good feature, we can look at it quickly, and in a matter of few days says ‘yes’ and get it out to brokers.”

Branding. If you want to trade on a brand name then yes, a larger firm is where you want to be. According to LPL’s Kandis Bates, the firm spends $1 million each year developing marketing communications materials for brokers to use, and has the personnel on hand to help planners deploy these resources in their own market.

Culture. If you or your clients like a conservative, no-frills environment – which can be very important to the image you are trying to portray and the practice you are trying to build – go small. The brokerage business is a tough and highly competitive way to make a buck, and firms that are not large will generally protect their margins with a hefty dose of thrift.

“A larger firm has more resources to commit to obtaining the best resources in the market,” admits Baldwin, “If AXA wants to hire the best recruiter in America they could. But what keeps LaSalle competitive is not the breadth of resources, but a focus on process that keeps costs down.”

Level of Expertise. If you want access to domain experts in every aspect of your practice, go large. “When you are a smaller firm,” says Putnam, “you hire generalists, because you need people who can do three to four things well. But, when you have size and scale, you can achieve a depth and breadth of staff expertise for each area of the business.”

It’s important to keep in mind that few things are more disruptive to your practice and more unsettling to your clients than changing your broker. Accordingly, while there is no right answer per se when it comes to selecting a larger versus smaller broker dealer, it’s vital to make your choice very, very carefully.