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Make Up or Break Up

Your partnership with your broker-dealer can be contentious. Is a “divorce” in your future?

By Dale G. Konicek, CLU, ChFC, AEP, Ph.D.

The relationship between you and your broker-dealer is like a marriage of convenience. You’re both together because you need each other, but for differing reasons.

Your broker-dealer is partnered with you for financial gain. You produce, and the B-D makes money. You’re in it for the money, too, but also for other reasons: You need the services and support the B-D provides, or perhaps you just need a place to park your license. (More on that later.)

Whatever the reason, you and your B-D need each other, but, like Ralph and Alice Kramden, there may be a tension in the air.

Because of the market decline over the last several years, B-Ds have been forced to change the way they handle their reps. Consumer complaints, new NASD rules and rising support costs have made retaining reps a challenge for B-Ds.

Because B-Ds are changing their rules and production requirements (some are even going out of business or being bought by other firms) maintaining an acceptable arrangement for your practice has also become a challenge. Some reps are leaving their B-Ds and going elsewhere. And you yourself may be finding that your marriage to your B-D is in trouble.

Irreconcilable differences
One reason you may think about leaving your B-D may have to do with market performance. When markets were good and assets were growing, B-Ds had money to invest in their organizations.

With money now tight, B-Ds are more carefully analyzing how much business is coming from which reps, and they’re terminating the low-producers. Few B-Ds are going to hold a rep who does not enhance the profitability of their organization. And larger B-Ds, are increasing their minimum production requirements to cater to higher-producing reps.

If it looks as if B-Ds are the demanding wives of the relationship, registered reps, on the other hand, can be conniving husbands. Just look at the issue of parking.

You and your broker-dealer need each other, but, like Ralph and Alice Kramden, there may be a tension in the air.

In the past, a low-producing rep was able to “park” his securities license with his B-D until he decided to either resume production, switch B-Ds or get out of the securities business. To have a securities license, a rep has to be affiliated with a B-D. Sometimes the rep stops producing but wants to keep his license active, so he parks it with his B-D. Many B-Ds used to tolerate this, but a few years ago, the NASD banned the practice. Today, if you have no production activity for two consecutive quarters, the B-D is obligated to terminate you. There’s no more free parking.

If you produce above your B-D’s minimum production requirements, however, you’re a good rep in their eyes. The problem is, you don’t have any control over the marketing plan. What happens to you when another firm buys your B-D? Or the B-D now only wants to deal with reps with larger accounts? How do you get along with your B-D when you control none of its future?

One thing you must remember is, your B-D is there to make money. This is a concept you should understand, yet you often hear reps criticizing their B-Ds because they are production-oriented.

In the beginning, your B-D may have signed you because the firm thought you had sales potential. But with B-Ds now focusing on the affluent, the concept of your sales potential changes quickly. You need to understand how you fit into this. You may need to leave your B-D because you are no longer what the firm wants. Get over it. It’s just the way the industry works.

It would be nice to think that your B-D is your best friend, but the truth is, the two of you are in a business relationship.

You have to consider what potential your B-D has for your practice. You are not going to change how the industry operates, so stop trying to fight a system that is well established and is required by the NASD. Treat the relationship as you would any other vendor. Your B-D cannot survive without its reps, so put yourself in the driver’s seat.

Relationship management
If your B-D is a fit for your practice and has the potential to help you grow, then it’s worth saving the marriage rather than breaking it up. The practical approach is to understand the rules, which center on compliance and production: What is required of me? How is business transacted? Who are the people I need to deal with? How is compliance handled? Becoming a student of your B-D will help you build a rapport with the firm that is business-centered rather than emotion-centered.

It’s been said that if you produce, the problems of dealing with your B-D go away. In today’s world, it is also necessary to understand where your B-D is going and how you fit into the plan. Understanding the attributes of your B-D will lead to a better relationship.

Dale G. Konicek, CLU, ChFC, AEP, Ph.D., is a financial operations principal for Magellan Securities Inc., in Houston. You may reach him at Kassocinc@aol.com.


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