Small Brokers See Boost From Financial Debacle

Nov. 27, 2009 - PRLog -- Small brokers are reporting marked gains in client share as well higher quality Brokers. This comes as a surprise to many in financial services, since bailouts and government loans have bolstered the positions of the Big Firms.

Ironically, it may be the very fact of government intervention – combined with the failures at virtually all big firms – that has contributed to the trend.

Both retail and institutional clients of Brokers shying away from Big Firms and gravitating to smaller firms represents a sea change in the financial services industry. “It’s an obvious move when you think about it,” says Robert Shapiro of TradeWallStreet Financial, a small broker dealer with offices in several states. “Advisors are responding by moving to firms with better clearing and safeguarding of client funds and securities – which the so-called big boys have failed miserably at. Theres also the idea that advisors at small firms are free to look at an entire market of products and services, rather than being pigeonholed into offering only proprietary products to clients.”

Proprietary products are often developed in house, and the firm stands to make a higher margin on sales. Often this fact is not disclosed, or whether the firm stands to make some form of kick-back is difficult to determine. But there are no guarantees that those products are better than others, and Big Firm Brokers often feel pressured to encourage clients to look at those products. But at some small firms, that pressure doesn’t exist. “Usually, you have access to all those products anyway, but at a small firm there is no pressure to sell them so you can truly pursue client alpha,”says Shapiro. Smaller firms may give Advisors a greater range of potential products and strategies, encouraging them to provide the best absolute returns for clients, rather than looking out for firm interests.

But does the approach really make a difference? At least one client of TradeWallStreet believes it does. “At [a recently troubled Big Name Broker], they were constantly advising their own managed accounts, which were uniformly under performers. And then I found out that management had been playing with funny money and needed a government bailout. Who was there to bail me out? At a smaller firm, he says, the change was apparent immediately. “These guys really care, they take time and they are completely focused on making me money and protecting what little I have. That’s what a relationship should be like, what I always imagined it could be.” He is not alone. Smaller firms, particularly those that have funds safeguarding relationships with the few institutions that did not participate in the meltdown, are reporting higher returns for clients, and that they are having an easier time attracting top performing talent in Advisors. Indeed, TradeWallSteet admitted that it is actively hiring broker/Advisors.

Of course the market has risen considerably since this time last year, and a rising tide lifts all ships. How much of this move is due to market timing versus approach remains to be seen. But in a financial system that has just gone through the greatest crisis in confidence in decades, it is an understandable argument that heightened interest would be taken in those few firms that did not participate in the downturn.

“It’s a no brainer”, says an advisor at TradeWallStreet who declined to identify himself. “At the end of the day, all that matters is did you perform. And right now, small boutique firms is where it’s at. Its a win-win for Advisors and clients. Clients are smarter now, and they want bang for their buck. The Big Firms just aren’t set up to do that.”

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TWS International is a firm that offers financial services in 50 countries around the world through financial advisors.