Download Cambridge Investment Research

SPOTLIGHT
Eric Schwartz describes how his small
investment firm became a trendsetter in a highly
competitive industry. Michael Sharkey reports.
Cambridge Investment Research
Investing
Trust
in
W W W . A M E R I C A N E X E C U T I V E . C O M
M A R C H
2 0 0 6
E
ric Schwartz talks fast, and his business
moves even faster. In the past 10 years,
Cambridge Investment Research has
rocketed from $2 million in revenue to $200
million by following a philosophy the founder
and president describes succinctly: What
everyone else sees as a problem, we see as an
opportunity.
When the industry believed that fee-based financial adviser services were problematic, Schwartz
saw opportunity and created an innovative
fee-based system that’s become the model for
broker-dealers nationwide. When the industry
lacked a comprehensive technology platform
that allowed financial advisers to process, manage, and store documents, Cambridge
Investment Research created one. And now,
Schwartz has his eyes set on the industry’s latest
problem—regulatory compliance.
“Over the last five years, the regulatory burden
has jumped monumentally,” Schwartz said.
“More and more financial advisers are worried
about regulatory compliance, and some are
thinking about getting out of the industry.
We’re forming a separate division of our company, which is specifically devoted to providing
regulatory support for our reps who have their
own registered investment advisers. It’s another
way we’re focusing on staying way ahead of our
more advisers to the company, Schwartz first
added clearing through Pershing and National
Financial, errors and omissions insurance, and an
RIA to compete with larger firms. To find a way
to truly differentiate his company from the competition, Schwartz said he began listening to
what his advisers wanted.
“I listened to what they were dissatisfied about,”
he said. “My competitors at the time just
brought advisers in to sell stocks, bonds, mutual
funds, and insurance. I found out that many
advisers wanted to move toward becoming a
trusted adviser instead of being a stockbroker or
insurance sales person. They wanted to move
more to the client side rather than the sales side.
And they didn’t want to simply sell what their
company wanted to sell—stocks recommended
that week by the analysts or products manufactured by the parent company. They wanted to sit
down with the customer, find out their needs,
and become their trusted adviser.”
Schwartz created a fee-based program where
advisers were paid an annual fee of around 1%
to manage a client’s money rather than a 2% to
5% commission every time a stock was sold or
a mutual fund or variable was purchased, and
he gave his advisers full discretion over their
client accounts. Most significantly, Schwartz
implemented an open architecture system where
The difference in our philosophy: we see opportunities to help our advisers and clients where
many firms see problems.
competitors and striving to provide an umbrella
of services at a far better cost.”
Listening close
Based in Fairfield, Iowa, privately owned
Cambridge Investment Research is a registered
independent broker-dealer that emerged from its
sister broker-dealer, Eneric Financial Services, in
1995. Today, there are 350 independently owned
Cambridge Investment offices across the US.
But in 1995, Cambridge was still a small investment firm with 45 advisers and gross revenues
of only $2 million a year. In an effort to attract
advisers can sell Cambridge’s fee-based program
as well as programs of qualified competitors and
third parties.
“We have over $4 billion in managed assets at
Schwab,” Schwartz said. “Most companies
wouldn’t allow that. We feel that if one of our
advisers and their client thinks that’s the best
place to put a client’s money, then that’s the best
place to put their money. We’re a trusted adviser
to the rep, and the rep is a trusted adviser to the
client. We’re not trying to get our advisers to do
what we want; we want to help them achieve
their own goals.”
W W W . A M E R I C A N E X E C U T I V E . C O M
M A R C H
2 0 0 6
Shortly after the program was implemented,
Cambridge began to experience a mammoth
growth surge. Year after year, the firm added
more reps, generated more revenue, and
grew at an average annual rate of 50%. Today,
the company has nearly 900 producing reps and
$200 million in revenue.
W
e believe in the Zen
expression that the tightest
grasp is with an open hand. If
System solution
Four years ago, Schwartz and his management
team began looking at ways to streamline operations through imaging technology. Traditionally,
larger companies within the industry had implemented imaging systems for their home offices,
but did not link the systems with their adviser’s
offices.
“We were shocked by that,” Schwartz said. “We
worked with vendors to build a system that not
only images everything in the home office, but
with a $1,000 scanner and nothing else, all the
documents our reps need to send to us can be
sent electronically.”
Documents scanned into the system are not only
sent to the home office, but also to Cambridge’s
clearing firms. Paperwork that once took three
to four days to route through the system to create accounts can now be done in one day. The
adviser’s documents are also stored electronically
at two separate locations, providing them with a
seamless disaster recovery program.
Schwartz also extended his open architecture
system to imaging by allowing advisers to store
any business documents they want on the system, including client tax returns. Along with the
benefit of not having to invest in their own
IT systems and staff, advisers can also access a
client’s documents from anywhere in the world
via the Web.
“We recently attended a conference and discovered that none of our competitors have a system
that can do the things ours can,” Schwartz said.
“And it’s not that we have a technology that
they can’t implement. Some of our competitors
are 10 times our size, and implemented imagery
before us, but they apparently weren’t thinking
about rolling it out to their advisers at the same
time. The difference in our philosophy: we see
opportunities to help our advisers and clients
where many firms see problems.”
you give people the greatest
opportunity to do the most
things and help them be successful, that’s the best way to
keep them rather than force
them into a small box.
Helping hand
The latest problem the industry faces that
Schwartz views as an opportunity is in regard
to regulatory compliance. Cambridge has never
been fined or penalized for violations, and
Schwartz wants to leverage the company’s ability
to solve compliance issues into service.
The company has formed a separate division
specifically devoted to regulatory support for
advisers who own their own RIA firms.
Cambridge is providing compliance consulting,
audits, reviews and risk assessments for these
advisers.
“We believe in the Zen expression that the
tightest grasp is with an open hand,” Schwartz
said. “If you give people the greatest opportunity
to do the most things and help them be successful, that’s the best way to keep them rather
than force them into a small box. In terms
of the products, the fee-based platforms,
and technology, we’re always trying to figure out what’s the most we can provide
our advisers, rather than providing them
with choices that force them into a narrow
place we want them to be. There is a
little fear. If we give them too many
options, they might go elsewhere. But if
we’re truly their trusted adviser, they’ll stay
with us because they trust us.”
W W W . A M E R I C A N E X E C U T I V E . C O M
M A R C H
2 0 0 6
CORPORATE
SPOTLIGHT