TRANSITION

Comparing four major models

Different firms offer different options and various levels of support and independence for
those options making it essential for you to conduct your own rigorous due diligence.

Different firms offer different options and various levels of support and independence for
those options making it essential for you to conduct your own rigorous due diligence. In
addition, regardless of the option you ultimately select, you should carefully assess the initial
costs of moving and starting operations in your new capacity. Similarly, explore any
recurring costs you may need to absorb or additional outlays you may need to make after
you are up and running.
In addition, the economies of scale that a broker/dealer can secure mean that it may be able
to offer administrative support as well as benefits including health coverage less
expensively and more efficiently than you could on your own should you choose an
independent model.

TRADITIONAL EMPLOYEE

This model reflects the way advisors have historically affiliated with broker/dealers or
Wirehouse firms. As a W2 employee working in a traditional branch setting, the financial
advisor typically receives high levels of support, benefits and resources without the
administrative responsibilities that independents assume. The tradeoff generally is a lower
gross payout than other business models, since the broker/dealer retains a portion of the
advisors fees and commissions to cover many, though not all, of the advisors costs of
doing business. A traditional employee works in a branch with support staff, all under the
supervision of a branch manager.
INDEPENDENT EMPLOYEE/QUASI-INDEPENDENT
This business model combines some features of traditional employee status with a level of
autonomy similar to that of independent contractors. (See Independent Contractor/affiliated
franchise.) This model allows more independence with regard to decisions on office
location, staffing and managing day-to-day operations, but still draws on the firms
administrative support services such as human resources, compliance, payroll and
technology. Compensation is based on the net profitability of your office and gross payout is
higher than at traditional full-service firms.
INDEPENDENT CONTRACTOR/AFFILIATED FRANCHISE
Independent contractors generally receive higher payouts than do financial advisors in
employee business models. At the same time, however, they have direct control over all
resources, operations and costs associated with running their businesses, such as office
leasing, equipment and staffing. For access to the many resources and products available
to traditional employees, independent advisors typically affiliate with a broker/dealer and pay
for needed services on an la carte basis.
INDEPENDENT REGISTERED INVESTMENT ADVISOR (RIA)
RIAs are typically most suited to money managers, financial planners and investment
management consultants wishing to operate in a fee-only environment. RIAs may use
discount brokers or full-service broker/dealers for clearing services as well as other
resources. Although the support and resources available may vary greatly from firm to firm,
the independent RIA is responsible for day-to-day operations such as dealing with
administrative tasks and ensuring adherence to compliance.

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Raymond James Case Study

What is a broker/dealer? Types

A broker/dealer is an intermediary in which investors purchase financial assets such as
stocks, bonds, and mutual funds, as well as services such as financial planning,
retirement, etc. Different types included wirehouses, which were the biggest firms
that did business on a national, and often global, basis. There were also independent
brokers who werent members of the NYSE. Lastly there were regional broker/dealers
who had the same product scope as wirehouses but were based solely outside of New
York.
What channels does Raymond James use to serve individual investors?
Raymond James currently has two channels. One was a network of employee financial
advisors. The additional channel was a network of independent financial advisors who
had access to Raymond James product and services, research, back office operations,
and brand name through an independent contractor relationship.
What is front money?
Front money was in retrospect a signing bonus offered to prospective hires. The front
money consisted of a certain percentage of that hires previous years payout. This was
used in order to draw that particular person away from a competitor. It was rare for a
person to get front money when going independent.
What is the Quasi model? Its benefits? Should be used or not?
The Quasi model was a channel that was placed somewhere between the employee
model and the independent model currently in use. Advisors in the Quasi would still be
employees of Raymond James, but would maintain a significant degree of operating and
financial independence. This came with all the upsides and downsides of independence.
Check Helk believed it would be beneficial to employees who wanted some
independence but feared going out completely on their own. The employee would make
all the key decisions in respect to their business, but the firm would provide the service.
While this looks like a really good idea on paper, right now there are a lot of kinks in the
Quasi model, particularly implementation and costs. Front money is rarely given to
independent financial advisors, but these Quasi employees might demand front money
Wachovia is doing in their model. This project could work but it needs some help.
Share the joy

RJA Tackles the Growth

Challenge
(Orlando, Fla.) Raymond James & Associates President Dennis Zank doesn't
mince words when it comes to how the traditional brokerage's recruiting and
growth efforts are going. "We continue to kill it," says Zank, who met with

360 of the firm's 1,000-plus advisors at the group's recent development

conference, held in late July at Disneyworld.
The St. Petersburg, Fla.-based full-service brokerage, which is part of 4,800advisor strong Raymond James Financial, attracted 142 experienced advisors
in the fiscal year ended September 30, 2005. In the first nine months of the
current fiscal year, 149 signed on at an average yearly production level of
over $500,000. And more reps continue to join from firms like Morgan
Stanley.
At this pace, says Zank, RJA could add 160 experienced reps and $80 million
in production -- a nearly 75 percent increase over last year's $46 million. He's
visited with 276 potential hires in the nine months ended June 30, a big jump
from the 162 who visited in the same year-ago period. "I meet with all those
coming through St. Petersburg, if I'm in the office and I'm breathing," shares
the executive.
"This is the perfect storm for us," says Zank, a native of Bloomfield Hills,
Mich., who joined the firm in 1978 after graduating from college.
The explanation for RJA's current success, he says, is two-fold. "As an
organization, we continue to believe that the advisor owns his or her book of
business. That, combined with the flexibility and ease of transitioning
between our different channels, makes for a very powerful pair of
motivators."
In addition, Raymond James' stock price has been on the rise -- up more than
10 percent through early August -- and there's a strong possibility that the
firm could be bought for a nice price, experts note.
Raymond James' Advisor Choice program, rolled out officially in 2004, gives
advisors the choice of affiliating with the firm as a traditional employee,
independent employee, independent contractor (Raymond James Financial
Services), independent RIA or as part of a bank/credit union.
Some reps are initially drawn to the idea of going independent, Zank and
other RJA execs say, but then back off from making that move when they
better understand what's involved in running their own business -- day in,
day out.

RJA provides its advisors "with the tools they need, like technology, to run
their business, and we get out of their way," says Zank. "We don't tell the
size of the account they should have and things like that. We're like a
hospital, and the advisor is the doctor."
As part of Raymond James Financial, RJA gives its advisors access to a
research department and bank, for instance. "This could mean an advisor
captures an extra point or two of upside for the client on an investment,"
says Zank. "That can be a big deal for both the advisor and the client."
RJA also is trying to raise its capability for its most elite producers. Though
most RJA reps produce from $500,000 to $5 million annually, there are some
with even higher sales and a very high-net-worth focus.
"We have to have the capability to support these large producers," Zank
acknowledges. "We have and continue to package an ultra-high-net-worth
capability. It is a priority in '06 as we attract advisors with bigger, higher
books of business, which can be based on one or two ultra-high-net-worth
relationships."
Fred Whaley, managing director of wealth services, has been leading up this
effort. "We are building a support team with dedicated financial advisors to
serve financial advisors" who want to look more closely at alternative
investments, trust services, etc., he says.
"They really do look a lot like a wirehouse and therefore are attractive to
wirehouse brokers," shares Chip Roame of Tiburon Strategic Advisors, an
industry consulting firm. "They're in a unique position relative to their peers."
Most industry players of this size have been bought up, he adds.
Meanwhile, RJA has a very strong presence in a booming part of the country.
"It's a good proposition to be selling," Roame concludes. "They've got the
right footprint."
This success, though, does appear to be testing the brokerage firm's limits,
or at least, the image it wants to maintain of itself. "My job is to grow the firm
in a logical manner that continues to protect the culture of the firm," Zank
says. And, like running a hospital, this is no easy feat. "We face demands for
new systems that are necessary for us to grow. But we don't want to grow
too quickly. That can hurt."

How is this growth stressing the system? Costs. "We've hired about $100
million in gross dealer concessions in the past 18 months, and that's
expensive by nature," the executive admits. To process these new sales, the
company has to beef up its spending on information technology.
While Zank copes with these operational challenges, Raymond James
Financial President and COO Chet Helck grapples with some of the broader
industry trends -- such as the best way to market and sell variable annuities,
and to avoid future entanglement with regulators; the company incurred a
$6.9 million fine over its lack of supervision of a rogue broker last fall, for
instance.
The firm imposed its own deadline of July 31 on insurance firms, requiring
them to offer less expensive products through its advisors. "This is how we
walk the talk," Helck explains. Raymond James says that nine of the 18
insurance firms it works with have met the deadline, which aimed to lower
the expense and lessen the complexity of these products; four more firms
are likely to comply with the company's new requirements in the fall.
Despite these efforts and the support of colleagues like Helck, Zank seems to
be juggling a lot these days, including the highs and lows that go with a fastgrowth business. "I'm not as excited over profits today as I am about the
prospects for the next year or two's profits, as revenues get up to speed,"
the head of RJA explains, adding that Raymond James staff processing
brokers in transition and their client accounts are "busier than they've ever
been."
"This is unchartered territory for Raymond James & Associates," he stresses.
Raymond James Financial Chairman and CEO Tom James, who remains
upbeat on Zank's ability at the helm, is clearly focused on ensuring that the
head of RJA lives up to that challenge. "Many financial advisors are happy to
have Dennis Zank as their leader. I guess my confidence was not misplaced,"
he shares. "We must make growth disciplined and controlled, so that
mistakes don't happen."
----RJA Headcount
6/05903

3/061,000
6/061,030
Net New Hires127
Source: Raymond James & Assoc.
----What's the 'Hybrid Model'?
Raymond James & Associates has a program for advisors that want to be
quasi-independent: Advisor Select with 33 advisors in 19 offices -- including a
former Merrill Lynch advisor who joined RJA in Atlanta earlier this year with
just under $1 million in production. And the firm aims to expand the group to
75 advisors over the next 12 months, according to Michael Voigt, the
division's director and a practicing advisor.
Advisors in the program are responsible for most branch expenses. They
have access to compliance, human resource and other staff at Raymond
James and generally get from 70 percent to 80 percent of their total
production, without paying any extra fees or "overhead-allocation charges."
"They can have their own brand, with their own signs and all the rest," says
Voigt. And they don't have to handle health care, payroll and similar issues.
They do, though, have to negotiate their own lease and get their practice up
and running -- with plenty of back-office support from RJA.
To date, the offices are heavily concentrated in the Midwest and Southeast.
"But we're seeing strong interest in New York and Pennsylvania because of a
recruiter who's getting calls for us," Voigt explains. And there's even interest
from as far as Hawaii.
Advisors signing on to Advisor Select need to have yearly production of at
least $500,000. "This makes it worthwhile for them to be in the model," says
Voigt.
----Female Friendly

Raymond James & Associates recently hired two veteran Morgan Stanley
brokers in Ponte Vedra Beach, Fla. Elizabeth Lippincott and Carrie Stinchfield
came over after spending 21 years and 16 years, respectively, at the
wirehouse. Combined, they have total production of nearly $1 million.
RJA has more than 110 female advisors in its ranks, many of whom are
former wirehouse reps, including Colleen Schon in Auburn Hills, Mich.,
Barbara Yount in Dallas and April DeLange in Kalamazoo, Mich. "You are truly
welcomed by other advisors when you join," says DeLange, a former Pru rep.
"I always send an e-mail to our new female advisors to encourage women in
our industry not to feel like just a number."
Schon, an ex-UBS and Merrill Lynch advisor, joined 18 months ago and is still
"pleasantly surprised" at the contact she has had with RJA's executives. "I
spoke with Dennis Zank one on one during the recruiting process," she
explains. "At the wirehouses, you never ever talk with the CEO, and the top
executives usually only speak with the top 10 producers. People here are
very caring and want their advisors to be well taken care of."
The result? Her production is up 15 percent this year, and assets are
growing. "It's easier to be successful," shares Schon.
-----