The Best Brokers in America
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Top performers have taken widely different paths in climbing to the top of the profession. Some may have spent long hours concentrating on cold calls during the beginning of their careers; others avoided the shotgun approach and instead focused on a core constituency.
That said, there are some obvious common denominators that the best do share. Indeed, they are the traits that you read about in all those CEO profiles. Trite, but true, it seems that the most important factors in succeeding as a broker are those that make people successful in all fields of endeavor: tenacity, integrity, conscientiousness and dedication.
Beyond that, there are traits among our winners that are industry-specific. On page 45, we have published a comprehensive list of the best-producing brokers in the U.S. If you study the table long enough, you will notice that the advisors on the list tend to have an area of expertise, a specialty. Martin Shafiroff, the biggest producer in the country and, probably the world, with around $10 billion in client assets, focused his practice on serving senior corporate executives of some of the largest companies in the world. Shafiroff is a value investor, and he also helps his clients diversify into alternative asset classes, such as limited partnerships, private equity and real estate that tend not to move in tandem with publicly traded equities.
Merrill Lynch's August Cenname, also featured here and No. 7 on the list with about $3 billion in assets, has created a “dream team” of advisors and experts on taxes, estate planning, etc. They provide virtually all the functions of a family office for their wealthy clients.
That's also the goal for the team assembled by No. 27, John Rafal, who is affiliated with Raymond James Financial Services. Rafal, a former lawyer, heads John Rafal & Associates, a firm of 33 professionals with about $1.1 billion under management in Essex, Conn. Like Cenname, he caters to wealthy clients who rely on his firm for investment services and many other money issues, from dealing with the IRS to handling estate matters.
Salomon Smith Barney's Michael Johnston, who has created the Johnston group within Solly and ranks 13th on our list, is an expert at using sophisticated hedging and arbitrage strategies. Johnston, like many others on the list, has direct access to various alternative managers in the U.S. A Harvard MBA, he performs the due diligence on hedge funds that do not have selling agreements with Solly.
Top management on Wall Street naturally is very cognizant of who these top brokers are and how they got to the top. “The greatest distinction for successful advisors is his advisory process,” says Michael Rice, an executive director at Prudential Securities who oversees Pru's domestic retail brokers. “FAs who have a solid consultative process built upon a financial planning discipline are the ones who thrive in today's environment. Brokers can no longer succeed with a random-walk approach to their clients' needs.”
This month, we feature five advisors. You'll notice that we did not simply take the top five on the list. We chose our profile subjects based on their own individual stories. And, anyway, we simply don't want to make too much out of who is No. 4, let's say, compared to who is No. 11.
Over the last several months — since the latest edition of my book on the best brokers in the country, The Winner's Circle, hit the bookstores — I have been in touch with thousands of advisors via telephone, e-mail and in person. (A new edition, The Winner's Circle IV, is due out next year. For that, I am compiling a ranking of the top 200 brokers.)
As I travel the country meeting more top brokers, I am struck by how different the business is for these top advisors than it is for the rest of the reps. The top brokers, unlike most reps, are not scrambling to find ways to get customers to continue investing in a bear market. The top brokers know how to handle any kind of market by using disciplined asset allocation strategies, hedges and, in general, employing the sophisticated techniques that keep high-net-worth clients happy. In fact, during the course of my research, I discovered that more than 90 percent of America's top 200 advisors that I have identified (see criteria below) currently say they are enjoying a boom in new business this year — mostly the result of an influx of dissatisfied investors.
In general, the best brokers profiled here and in my Winner's Circle books are advisors who are quick to respond to an ever-changing environment (particularly in the wake of the repeal of regulations separating banks, insurance and securities firms). But they never lose sight of their singular focus: serving the needs of their clients.
How Advisors Are Selected
The first step in compiling the list of the best brokers was simple legwork. I scoured the U.S. for the best financial advisors, generating a list that numbers well in excess of 1,000, representing more than 50 firms. I interviewed the top executives of brokerage houses, who provided long lists of their top producers. I also interviewed the firms' national sales and compliance departments, media relations people and branch managers. I surveyed scores of financial advisors from around the country. In all, this required more than 3,000 conversations with about 1,300 individuals over the course of many months. This does not include several hundred nominations by advisors (usually for themselves) that we received. In the undertaking, I compiled a huge database of advisors, complete with production numbers, assets under management, biographies and other personal and professional information. Naturally, the database is confidential (note to vendors: Stop calling).
It is important to note that I could not have done this without the cooperation of the brokerage firms, who opened their doors to me, providing me with access to their top executives and their rank and file. For that, I am thankful.
Once I had the basic list, I wanted to make sure that these names were not only top producers, but also honest and well-respected professionals. I ranked each one on the following criteria:
Acceptable compliance and legal records
Only financial advisors with the highest ethical standards and integrity are considered. Getting a bead on a broker's integrity is not as easy as it sounds. The financial services industry is heavily regulated, and every formal complaint, whether justified or unfounded, is archived virtually forever, on Form U-4s.
Most of the brokers on the list and in Winner's Circle have never had a formal — that is to say, written — complaint. What's more, virtually all financial advisors are in the top echelons in terms of client-loss records. In the rare cases where there were pending actions or settled disputes, I talked to managers about the infraction. In general, brokers who were the subject of complaints were eliminated from the list. There are simply too many talented advisors with sterling records who deserve to be recognized in a list such as this.
Total assets under management
The rankings were based on production and total assets that the financial advisor has under management. That includes assets custodied by his own firm and assets not held at the advisor's firm. Therefore, reps who had substantial assets in, say, a hedge fund not sponsored by his firm, were counted. Individuals in partnerships were judged based on their percentage interest in the partnership.
Client satisfaction
This is the most difficult criterion to measure accurately, outside of compliance records. Of course, assets under management are an indication of client satisfaction — otherwise they wouldn't have such big practices. I also considered client-loss ratios, client satisfaction ratings and discussions with each advisor's management. In addition, I interviewed clients at random as a spot check.
Community involvement
This is given the lowest weighting. Fiduciary responsibility is weighted heavily. Interestingly, however, it's common among the top performers to give back. They tend to be active in their communities, the securities industry and even philanthropic causes.
In the end, each person was given a score for each criterion and a cumulative score was tallied. Then I ranked them against the leader in each category (production being the most important). One more thing: production numbers were not published, since many brokers participated on the basis that that number be kept confidential. Assets under management, however, is listed for each broker. [Editors note: An exception was made for Smith Barney. Despite Smith Barney brokers' eagerness to publish their assets under management a spokeswoman told Registered Rep. it is against firm policy to do so. Also, UBS PaineWebber declined to cooperate with Registered Rep.]
This methodology and the results were further vetted to a panel of advisors, all of whom are industry veterans. This was done to help safeguard the integrity of the process and to serve as insurance against unintentionally highlighting an undeserving or unsuitable rep. After all, a handful of rogue financial advisors can make an entire industry of hundreds of thousands of professionals seem dishonorable.
#1. The $10 Billion Book
Martin Shafiroff
Lehman Brothers
New York
Martin Shafiroff is the nation's biggest-producing financial advisor. Indeed, Shafiroff, the son of a Brooklyn plumbing-supply salesman, is a legend. With an awe-inspiring $10 billion in assets under management, Shafiroff has led the industry in total revenues for decades. And like all of the reps featured this month, he has a spotless compliance record.
So, how did a guy who started out with zero insight into Wall Street, a guy who first worked in the family plumbing business create the biggest retail investment advisory practice in the country?
Shafiroff, 64, attributes his success to hard work, of course, but also to his strong investment research skills. “If I were just in the market selling a product that everybody else had, I don't think I would have been very successful,” he says. “My investment ideas are unique. They clearly differentiate me from my competitors.”
Shafiroff has a value bent, and, as such, is focused on wealth preservation through asset allocation and use of nontraditional investments such as limited partnerships, hedge funds and private equity and other assets that don't move in sync with equity markets. The idea is to seek growth but, at the same time, to protect wealth.
“I don't want to rely on the public equity markets in order to obtain attractive returns,” Shafiroff says. “In this environment, investors need to hold their head low by holding assets and collecting cash dividends.”
Using his finance degree from Baruch College, Shafiroff could have become an analyst or money manager. “I decided to go into sales,” he explains, “because I enjoyed communicating with people on a personal basis and felt I could apply my knowledge of securities in a more helpful and intimate manner.”
Breaking in to the clubby world of Wall Street back then was not easy for a guy from Brooklyn with no Street contacts. At the age of 28, Shafiroff called on five brokerage houses and pleaded for interviews. All but one declined to even interview him.
In 1966, he was hired by Eastman Dillon Union Securities by impressing the firm's human resources manager with his knowledge of a particular equity investment the manager owned. In 1969, he joined Lehman Brothers, where he's been ever since.
Shafiroff built his practice by defining a target market and a specialty. “Initially, I focused my calls by defining the group I wanted to communicate with: senior people in the corporate world,” Shafiroff says. “I would work with executives of the 2,000 most highly rated companies. They are completely involved in their jobs and, consequently, tend to overlook their personal investment affairs.”
Along the way, Shafiroff has learned that prospecting and researching his investment ideas go hand in hand. When prospecting corporate-level executives, he is often led to new investment ideas. And sometimes his search for new investment ideas generates new clients. That's because in his extensive meetings and interviews with executives of the companies or partnerships he's evaluating, some of these individuals become so impressed with Shafiroff's research that they eventually become clients.
#6. Leading the Way
Ira Walker
Morgan Stanley
Red Bank, N.J.
Who would consider the antique business an excellent breeding ground for Wall Street success? It was for Ira Walker, who got his early education in his father's Manhattan antiques shop. “When you're exposed to a lot of negotiating, buying and selling at a young age, you earn the ability to communicate effectively in business, which is essential,” he says.
After graduating from Brooklyn College in 1978, Walker, 46, became involved in real estate. His interest in the securities industry was piqued in the early 1980s when he went to a party and saw the entire room gathered around a broker. “I was so impressed that one person could command the interest of 50 people that I decided to pursue a career in investing,” he recalls.
He joined a major securities firm just as the bull market was gathering steam — before hitting a brick wall in 1987. Walker positioned himself as a financial advisor, not a stock jockey. “I simply preferred to analyze a person's full financial situation,” Walker says. “That opened me up to providing a full range of services, from asset allocation modeling to estate and business planning.”
Today, Walker is one of Morgan Stanley's most venerated and most watched financial advisors, with more than $800 million in client assets. He credits his early move into full financial planning as the springboard to his success. Walker has two simple rules for success. First, and always foremost, provide extraordinary service and advice to clients. Second, transform much of your book into a fee-based, asset-gathering business.
The past two years have been hard on everyone, but Walker says that his financial advisory focus has helped mitigate some of his clients' pain — with exposure to assets ranging from equities to managed futures to cash and bonds. “We're hand-holding, educating and overall communicating to a high degree. Clients must understand that markets must be dealt with on a long-term basis, and that the best days to invest are often the most difficult.” As a result, since September 11, Walker has opened many new accounts, with the average account size around $5 million and many up to $100 million. Five years ago, his average account was $1 million.
He advises younger brokers not to hide in times like this. “Historically, the best time to buy has been during bear markets,” he says. “When the markets do go down, you must overload clients with communications in order to reinforce your plan. This is when you really earn your pay — to provide advice and service when they need it the most.”
Walker also believes that the brokerage business itself is going to get tougher. Expect fee compression, he warns. “Today, financial advisors are still collecting anywhere from 1.5 percent to 2 percent, or in some cases up to 3 percent, depending on the size of the account,” Walker says. “In the next five years or so, the average fee may drop by about half.” And, he predicts: “Financial advisors that serve the high-net-worth client are likely to see the biggest fee compression. During bear markets, advisors are going to have to work twice as hard for half the revenue…if you understand that, when the market stabilizes, you can triple or quadruple your revenue over the next five to 10 years.”
#7. It's All About the Team
August “Augie” Cenname
Merrill Lynch
Columbus, Ohio
To say that Augie Cenname has evolved in his 36 years as a broker would be an understatement. Now sitting atop a team of 16 people with about $3 billion under management, Cenname, 60, began his career as a straight-ahead broker during the 1960s Go-Go market. In that favorable environment, he quickly learned how to make money for his clients, going long on stocks. The cruel bear market of 1973 and 1974 changed all that, and Cenname, in response, learned to use hedging strategies to make his clients money in foul weather, too.
The 1980s saw massive business restructuring, the end of “stagflation” and the birth of another bull market. “As our world was being reshaped,” Cenname says, “the demographics of our client base changed.” He noticed that borrowers became savers, and savers were morphing into investors. “Add the acceleration of technology, the globalization of business and the aging of the population of this country and the result is a great deal of change. Investors' needs were becoming much more complex and demanding of professional attention.”
In 1983, he called a meeting with his two partners. “We understood that we had to evolve into a financial planning-based business in order to succeed,” he recalls. To deliver more comprehensive services, Cenname began to assemble a team of specialists in various financial disciplines.
In the 1990s, as his clients gathered more wealth, new strategies were required — for wealth preservation, diversifying concentrated stock positions, trust and estate planning and philanthropic services.
Cenname's latest foray: the family office. “Our clients view us as their cooperative family office. Simply put, we're [transforming] ourselves into our clients' tax advisor, estate planning and legal advisor and other professionals,” Cenname says.
The team now has access to a new specialist, a “gerontologist” to work on eldercare issues, such as choosing assisted living facilities. “We don't just talk about multigenerational relationships; we actively pursue associations with three or four generations of a single family.” And for the children in his clients' families, Cenname's team offers an educational component run by the younger members of his team.
The new millennium has brought yet a new challenge. “Investors are looking at the world differently,” Cenname says. “They have lost trust and confidence in their ability to create and preserve wealth. It won't be as easy as it was. We're going to have to work for it and be innovative. The wind is no longer behind us.”
#18. A Family Affair
John Cooke and the Cooke Financial Group
Prudential Financial
Indianapolis
John Cooke, a former Air Force pilot, started out as an advisor in 1968. Cooke basically was an early adopter of many of the trends that are dominating the brokerage industry today. He was one of the first to develop a team approach so that he would have the skills necessary to offer complete financial planning. In 1969, when he joined Thompson McKinnon Securities (later absorbed by Prudential Securities), he took a salary instead of commission, which would have been far more lucrative.
He realized that a fee-based business would better align him with his clients' interests, he says. And in the mid-1970s, he transformed his book into a managed account business, farming out the actual money management, so that he could concentrate on his clients' larger financial planning strategies and also seek new business.
The model has worked well, with managed money representing a majority of Cooke's $800 million under management. Today, the Cooke Financial Group (of Prudential) is among the most successful teams in the industry.
Cooke, 62, also provides fee-based clients with a host of other services, such as estate planning and liability management, as well as a full suite of credit services. “We're a general practitioner, but when it's time for surgery, we bring in the surgeon,” he says of his relationship with tax and estate planning experts.
Cooke, who brought on his sons Chris and Brian, predicts that advisory fees will have to come down, and not just because of the bear market. While the industry's average retail managed account fee was still in the 2 percent to 3 percent range, Cooke's average fees were hovering around 1.5 percent. In fact, during the 1990s, Cooke began to lower his fees, not just to prospects, but for existing clients. When the Cookes reduced their fees, they felt a substantial savings to clients equated to a corresponding reduction in the team's revenue, but they believed this business strategy would benefit them long-term. “We felt that when the market reverted to more normal returns, or turned bearish, clients would expect to pay lower costs, eventually resulting in fee compression throughout the financial services industry,” says Chris Cooke, 37.
“We also envisioned a fundamental shift taking place within the industry,” adds Brian Cooke, 35. “Fees would inevitably come under pressure due to the increase in Internet accounts, day-traders, do-it-yourself investors, mutual fund wrap programs and incremental competition in managed accounts.”
Reducing costs for their clients is one of their priorities. “When times are tough and good investment results are hard to come by, saving money becomes just as important to the individual as generating a good relative return,” says Chris Cooke.
The lesson was learned early. Cooke grew up in Peru, Ind. (the birthplace of Cole Porter), working in his father's hardware store. His father taught him that if you give clients solid value, they'd return to do business with you again and again. That proved to be the foundation for his professional life.
Cooke says, “It always comes back to doing what's right for the client, without thinking too much about compensation.” If the Cookes are right about this trend, more advisors will follow their path of trying to provide high levels of service and professionalism, while operating efficiently and effectively in order to remain competitive.
#27. Cut Fees and Prosper
John Rafal
Raymond James Financial Services
Essex, Conn.
Not every broker would turn away a client with a multimillion-dollar portfolio because he didn't think he could add value. But John Rafal did. After scrutinizing the investments of a doctor who sought advice, Rafal sent him back to his current broker. “I'm trying to poke holes in this [investment strategy] because I'd love to do business with you,” he told the M.D. “But honestly you're in too good a shape to make changes.”
Two years later, the doctor returned, handing Rafal, of John Rafal & Associates, a branch of Raymond James and an affiliate of Essex Savings Bank in Essex, Conn., his entire portfolio and the names of two other physicians who became clients. The moral? “If you do what's right for your clients, without regard to your compensation, you will always be well paid,” he says. “In other words, take care of the client first and foremost, and everything else will take care of itself.”
Oh yeah, low fees help, too. “In down markets, low fees are very meaningful,” he says in an obvious understatement. “While others may be charging up to 3 percent, and we're charging only 75 basis points — or even less for bigger accounts — we are doing what is best for our clients.” With this philosophy, Rafal, 52, has amassed about $1.2 billion in assets under management.
Moreover, he offers clients the option of paying on either a fee-based or transaction basis and has no minimum asset requirement. One woman placed her $1.6 million with Rafal after being turned away from the local office of a well-known national “private bank,” which had a $2 million minimum. “Telling someone they're too small is not something you do in a small community like Essex,” he says. The woman has since referred a number of clients.
It also helps to have a diversified staff of 33. Every client is assigned two advisors, typically Rafal and a specialist in either pensions, estate planning, life insurance, equities or fixed income. Some clients work with every member of the team. “We're like a law firm, all working to help clients achieve their financial goals,” he says.
Success hasn't come easy. Rafal, who has been in the business for 27 years, failed at his first attempt to build an estate planning and life insurance practice. Why? Rafal, an attorney who passed the bar in 1975, worked for Connecticut General. It offered excellent training but inferior products, he says.
When a new client comes aboard — typically a referral from an attorney, accountant, pension actuary or existing client — Rafal's initial goal is to address immediate concerns, followed by a six-month to several-year period of addressing virtually any financial need. (He believes it often takes up to six months to identify, analyze and resolve all estate planning, pension and tax planning issues.)
“We fully recognize that all competitors are selling the same products, so if we deliver better knowledge and service and are completely independent, we'll…succeed in a very difficult and challenging environment.” During the bear market, reviews were conducted every quarter. But now, he says, advisors have to stay even closer to their clients.
“Relationships are being tested across the spectrum right now,” says Rafal. “Clients have gone from complete greed to complete fear. People are upset as they realize their retirement plans are postponed or their college savings accounts are diminishing in value. Virtually every advisor is feeling pain.”
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