Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!usa-post Newsgroups: usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Mon, Feb 17 1992 Date: Mon, 17 Feb 92 06:46:35 EST Message-ID: BONUS: Service is firms' best asset USA TODAY Update Feb. 17, 1992 Source: USA TODAY:Gannett National Information Network D.A. Davidson & Co. is thriving in the wilds of Montana. In a rural Western state, that wouldn't be surprising for a ranch, mining or logging firm. But D.A. Davidson, better known to Montana investors as DAD, is a brokerage. And times have never been better in the company's 57-year history. "We're delighted," says Chairman Ian Davidson. HOW DOES ONE MEASURE A BROKERAGE'S SUCCESS? One barometer to measure how a brokerage is doing is the amount of money it handles for its customers. In D.A. Davidson's fiscal 1991, which ended Sept. 30, the amount of customer assets held by the brokerage jumped nearly 20% to $2.4 billion. Not bad, considering that the region D.A. Davidson serves - Montana, northern Idaho and northern Wyoming - has a population of 1.2 million. IS DAVIDSON'S SUCCESS UNIQUE FOR A SMALL FIRM? D.A. Davidson is just one of many such success stories. Regional brokerages in smaller cities, towns and parishes across the USA are in boom times. The reason is simple. Individual investors who make up the bulk of regional brokerages' customers have come back to the stock market in a big way. Yields available on certificates of deposit and money-market accounts are laughably low. Rates available on bank passbook savings accounts barely counter the effects of inflation. And people don't think of their homes as reliable investments any more because of sagging real-estate prices. WHY HAVE STOCKS REPLACED REAL ESTATE AS THE INVESTMENT OF CHOICE? Hopes for an economic recovery have sent stocks soaring the past 13 months. That's been enough to win back individual investors who were scared away from stocks by the market crash in October 1987 and plunge in October 1989. Outside of the larger cities on the East Coast, one of the most likely routes for an average investor to take to the stock market is through the doors of the local office of a regional brokerage. HOW MANY REGIONAL BROKERAGES ARE THERE? There are 134 regionals in the USA. The names of the smaller regional brokerages may not even be recognized by many people in the brokerages' hometowns. Other regionals are well-known at home and around the country. In Minneapolis, there's Piper Jaffray. In St. Petersburg, Fla., there's Raymond, James Financial, whose strength is the Southeast, though it has offices in 48 states. In Baltimore, there are Alex. Brown & Sons and Legg Mason. WHAT EXACTLY IS A REGIONAL BROKERAGE? The Securities Industry Association defines a regional as a brokerage that has a network of branches and offers many of the same services as a national full-line brokerages but is not as large. If that sounds a little fuzzy, it is. One of the biggest success stories among regional brokerages - A.G. Edwards in St. Louis - has gotten too big for the SIA to consider it regional. IS SIZE THE ONLY DIFFERENCE BETWEEN REGIONAL AND NATIONAL FIRMS? But there's more to being a regional brokerage than being a little smaller than Merrill Lynch and having a headquarters outside New York City. Regionals typically approach the brokerage business differently than do national firms. Big national brokerages cater to institutional and individual investors. The nationals also act as investment bankers and set up financing and work out details on takeovers for other companies. They manage underwritings of stock and bonds for companies. They trade stocks, bonds and commodities for their own account. Many national brokerages even take investment stakes in companies. WHAT'S THE FOCUS OF REGIONAL BROKERAGES? Most regional brokerages focus on selling investments to individuals. They may dabble in corporate finance, underwriting stock and bond offerings for local companies. But regionals put far more importance on winning the $79 or so an investor pays a regional broker to buy 100 shares of a $30 stock. Commissions on fixed-income investments such as municipal bonds provide a steady pulse of business for the regionals. But what really pumps up their profits is commissions on stock sales. WHY DO REGIONALS FOCUS ON STOCKS? That's great when the stock market is racking up records on a regular basis the way it has since the start of last year. The seductive rise in stock prices keeps the phones ringing at regionals. The more stock that regionals put in the hands of clients, the higher their income from commissions. That reliance on stock commissions can cause big swings in profitability. When interest rates are high and the stock market is falling or is flat, individual investors are not nearly as interested in buying stock. Then, brokers go back to selling mostly bonds and CDs - which typically bring in much smaller commissions than stocks. WHY WOULD AN INVESTOR USE A REGIONAL INSTEAD OF A NATIONAL FIRM? National brokerages don't limit themselves to chasing investors in big cities. Merrill Lynch, for instance, has 460 offices in 49 states. Regionals have to set themselves apart from the national companies and give investors a good reason to come into their office and open an account. They do that by emphasizing service. "We hear they are more willing to talk with customers and spend time with individual investors," says John Markese, research chief at the American Association of Individual Investors. A little bit of effort can go a long way with individual investors. WHAT ELSE MAKES REGIONALS DISTINCT? Keeping more brokers. The key person in regionals' efforts to give clients what they want is the broker. Investors usually like to stay with a broker they like, and they want that broker to have enough time to talk to them. The entire brokerage industry shrank after the stock market crashed in October 1987. But regionals kept more of their brokers. According to the SIA, the number of brokers at regionals fell 12% between third-quarter 1987 and fourth-quarter 1990, when the current market rally started. Since then, regionals have boosted their brokerage ranks 10%. But the number of brokers employed by national firms fell almost 28% after the 1987 crash. HOW CAN BEING SMALL BE AN ADVANTAGE? Research analysts and brokers at regional brokerages can take the time to check out local companies and find the investment that could turn out to be gems for clients. That can mean a promising growth stock of a local building-products chain, or a municipal bond funding a new sewage-treatment plant that's safe yet has a high yield. National brokerages have big research staffs. But they don't have the resources necessary to unearth all of the solid smaller companies around the USA. WHAT'S THE PAYOFF? For regionals that consistently watch out for clients' best interests, the payoff can be a solid reputation and loyal customer base. When times are good in the stock market, that loyalty translates into booming business and soaring stock commissions and asset levels. That's how it has worked for D.A. Davidson, which likes to play up its initials to build its solid, paternal reputation. "I don't know what we would have done if my father's middle name had been Ulysses," he says. "DUD & Co. just wouldn't work." Bonus Editor: Michele Coleman. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. 08:0002170000T2030 US01-R - USA-TODAY............................. A T2030 02-17 0000 cc cc Feb. 17, 1992 This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM