Some securities brokers try independent route

Securities brokers in greater numbers are trading in the security and certitude of the nation's largest investment companies to forge their own financial future.

A boom economy, soaring stock market, and proven ability to succeed are among the driving factors spurring successful brokers to create their own investment companies or funds.

Take the case of Ed Borgato and Tom Barrow, two of the highest producing brokers in the Las Vegas office of PaineWebber Inc.

In November Borgato and Barrow left behind PaineWebber's name recognition to blaze their own entrepreneurial trail.

Along with partner Ben Sontheimer, the two brokers opened their own money management firm, Javelin Capital. Located at 7674 West Lake Mead Blvd. in Summerlin, the investment firm targets rich Las Vegans for its new hedge fund.

"While we're not a brokerage firm -- we offer our Javelin Partners fund -- our investment style is rather unique and not within the confines of the structure offered at PaineWebber," said Borgato.

"We also went out on our own so that we'd be rewarded based on our (investment) success for our clients. We're not just managers, but also investors in our fund. At PaineWebber, you were paid whether you succeeded or not."

A 12-year investment industry pro, Borgato said there are "many people around the country who have considered it (leaving their brokerage firm) and several have discussed it with me."

Though it's impossible to calculate how many brokers have left big investment houses in recent years to chart their own course, Borgato and Barrow's quest for independence is not unique.

Ted Schlazer, partner at Henderson-based Paragon Asset Management, also traded a high-profile Wall Street position in search of his own financial destiny.

"I worked for 11 years on the institutional side of Wall Street before I came to Las Vegas in 1991," said Schlazer. "But after the 1987 crash, our (investment) firm was sold to General Electric and things changed. The fun disappeared, and GE just wasn't risk oriented or aggressive in their (investment) approach."

Schlazer says he was "burned out" from the frenetic pace of Wall Street, and after arriving in Las Vegas decided to try his hand at the retail side of the industry.

"I took a job with PaineWebber, and all they wanted me to do was sell their product," he said. "I was really nothing more than a salesman, and quite frankly I didn't like being told what to sell."

It wasn't until he accepted a position with the former First Interstate Bank that Schlazer found "the fun came back in my work."

However, when he began to question why he received 20 percent of commissions -- in contrast to the bank's 80 percent -- Schlazer realized "it might be time to think about doing this on my own."

Three years ago, Schlazer joined partner Bob Kasner to form Paragon; the company currently has more than $250 million in managed assets.

Representatives from some of the nation's largest brokerage houses -- including PaineWebber Inc., Merrill Lynch, and Morgan Stanley Dean Witter & Co. -- all declined to comment on the issue of broker retention.

Though they may be unwilling to discuss the issue, large investment firms are taking a more aggressive stand against departing brokers.

For example, last August a three-member arbitration panel from the National Association of Securities Dealers prevented former Merrill Lynch representative Jeffrey Bass "from soliciting, directly or indirectly, any client" acquired during his tenure with the investment giant.

Merrill successfully argued before the panel that a non-compete clause prevented Bass from soliciting clients for one year. Last spring, Bass was the fourth broker in four months to leave Merrill's Columbia, Md., office.

Industry experts say that type of action is becoming increasingly common, as the nation's largest investment firms take a more assertive stance against departing brokers seeking to take their clients with them.

"There's no question the big firms are working harder than ever to try and stop brokers who are leaving (the company) from taking their (client) book with them," said Jack Handey, executive vice-president of Torrance, Calif.-based Financial Network Investment Corp.

Handey's company is one of a growing number of firms providing individual financial representatives and brokers an alternative to brokerage titans such as Merrill Lynch and PaineWebber.

"Unlike the big brokerage firms, with us it's very clear that the (financial) representative owns his own book of business," said Handey. "While joining our firm provides access to all our products and services -- including more than 200 mutual funds and insurance products -- brokers are responsible for their own expenses."

The higher commission -- often reaching 90 percent of the service fee paid by clients -- offered by firms such as Handey's successfully lures many brokers away from Wall Street's biggest investment firms.

"Without question, a lot of brokers are asking themselves, 'Why should I make X number of dollars at 30 percent (commission) when I can make up to 90 percent out on my own?' " said Norlyn Feldman, senior vice-president of Syracuse, N.Y.-based Cadaret, Grant & Co.

Feldman said her company provides individual brokers with both technical and marketing support, and touts a membership of about 900 financial advisors and brokers nationwide.

Both Feldman and Handey say commissions paid to brokers vary depending on monies generated, but far exceed fees paid by the Wall Street giants.

Cadaret brokers receive an average of 87 percent of commissions paid by clients, said Feldman. "That number goes as high as 90 percent if they (brokers) reach $1 million or more."

Handey said Financial Network advisors typically receive 75 percent commission, "although that figure can run as high as 85 percent for million dollar producers."

Brent Wilsey, branch manager of San Diego-based Linsco/Private Ledger, said his firm acts as a full-service brokerage providing the same services offered by Wall Street's biggest investment firms.

"We have about 2,700 financial representatives nationwide, and that number would be higher except for the fact that we don't take just anybody," said Wilsey.

As with so many other financial representatives, Wilsey is also a former employee of a Wall Street powerhouse.

"About eight or nine years ago, I started to wonder what I was getting in exchange for giving up such a large percentage (of commission) to the firm," he said. "Then I realized their percentage could pay for my own office and equipment."

Wilsey said many financial representatives reach the same conclusion, especially when they realize that as an independent contractor their business expenses are tax deductions.

Although the financial rewards can be considerable, it's still the entrepreneurial satisfaction that drives many successful brokers to take the higher risks that come with independence.

"For me, going out on our own has already proven to be a great decision," said Borgato. "I enjoy waking up and feeling excited about what we're going to do each day."

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