The Five Reasons Smaller Broker Dealers Can Grow Your AUM

The Five Reasons Smaller Broker Dealers Can Grow Your AUM
By Andyhill8 (Andy Hill) [Public domain], via Wikimedia Commons

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Passion is essential for growing your business as an advisor, but most broker dealers don’t exactly support that vibe. In fact, the protocols in place at many of the larger broker dealers are a de-motivator that stifles even the most passionate advisor’s enthusiasm. If you’re looking to grow by realigning your practice with your inner beliefs and passions, here are five reasons to move to a small or mid-sized broker dealer firm.

Hedge Fund Launches Jump Despite Equity Market Declines

Last year was a bumper year for hedge fund launches. According to a Hedge Fund Research report released towards the end of March, 614 new funds hit the market in 2021. That was the highest number of launches since 2017, when a record 735 new hedge funds were rolled out to investors. What’s interesting about Read More

  1. Better client service

Confusion and ambiguity are the enemies of business growth.

Do you like being Rep #47121, or do you feel that being on a first-name basis with the person servicing your relationship is more conducive to getting things done? There are so many nuances that go along with this business, from settling trades to account paperwork to licensing and registrations.

A streamlined, direct process that results from highly interconnected people makes a difference to how your clients experience working with you.

  1. Fewer marketing roadblocks

The wirehouses take marketing restriction to an extreme. This comes from their necessity to exert control over a large and quota-driven team of broker-dealer representatives.

Think about how scary it is for the compliance office who oversees hundreds and hundreds of reps. Most of the time, reps play by the rules. But you do get the occasional maverick who wants to make a point out of making your life miserable. This is the quintessential bad apple that ruins it for the rest. So as a result, anytime Rep #47121 wants to get even the most straightforward communication approved, like a quarterly newsletter, you have to go through a tedious process. Really it’s just a defense mechanism.

And you also shouldn’t overlook that the UBS and Morgan Stanleys of the world have a vested interest in preserving their brand identity. They have a centralized marketing department that spends millions and millions on campaigns that management has determined to be their strategic focus.

Look at it from their point of view. You’re the head of marketing at JPMorgan. You spent $5 million on a marketing campaign that involved surveying various business leaders around the globe. Now Rep #47121 wants to write a blog article about how large corporations are the demise of economy and as an alternative you should invest in small-cap stocks. That’s not going to go over well with your boss, the one who wrote the $5 million check. Remember him or her? So in advance of the angry phone/email, JPMorgan makes it as painful as surgery without anesthesia anytime any rep wants to post a Happy Thanksgiving card to social media.

In my experience, the smaller the broker dealer the more freedom there is in terms of marketing. It’s logical if you think about it; the creativity is where a smaller firm has the opportunity to outshine the wirehouses and broker dealers. So they have to let their reps express themselves a bit more to allow them to grow their businesses.

Also, at a small to mid-sized broker dealer you have the personal connection that you wouldn’t have at a larger one. For example, at my broker dealer firm my compliance officer is on a first name basis with our reps. Most of the time, it takes only a few days for a rep to get a marketing piece approved. Also, we have an in-house graphic designer who helps them make their pieces look stunning on social media. This has mobilized my team and helped them be known. In a rapidly moving digital age this is a huge advantage for them.

  1. Payouts tend to be richer

Now, before I put my foot in my mouth and make a general statement that everyone pokes holes in, I’ll issue the disclaimer in advance that every company has its advantages and disadvantages from a fee standpoint.

In my experience, the smaller or medium sized broker dealers tend to avoid “feeing to death” their reps and offer higher payouts. This is in part to motivate the reps at larger broker dealers to come to them, and also to encourage retention. There also can be less overhead at a smaller operation.

As an example, our reps are always astounded when their clients call our tech support line for help and we don’t charge anything for it. They were expecting us to bill for the hours spent — but in our view, it’s a given that a broker dealer should provide technology that works for the clients of our firm.

Read the full article here by Stephen Distante, Advisor Perspectives

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