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Benefits of Transitioning from a Small Broker-Dealer to a Super OSJ

The Right Plan, the Right People at the Right Time

23 Aug 2017
The Right Plan, the Right People at the Right Time

A winning mix that helped a young advisor build a growing OSJ group.

Back in 2002, Todd Terhorst was a 32-year-old advisor from the Twin Cities with a nine-year tenure at an insurance-based broker-dealer. Considering a move into the independent world, Terhorst began a search for a new broker-dealer that could support his goals.

After doing his homework and weighing his options, he decided on Securities America. He’d already built up a personal book of business and was hoping the
independent broker-dealer environment would help him expand his services and build his practice faster. He admits his goals didn’t include building a big group of advisors.

“Securities America had that hometown feel. The culture matched up with what I was looking for, and the technology offering was attractive.”

Little did he know, he’d taken his first step on a path that would lead him to heading up an expanding OSJ group just a few years later. Today, Terhorst’s branch has 49 advisors who collectively had about $1 billion in assets under management at the end of 2015.

“Securities America had that hometown feel,” Terhorst said of his choice in going independent. “The culture matched up with what I was looking for, and the technology offering was attractive. I hadn’t thought about becoming an OSJ, but in the first year, I was approached by former colleagues from my previous broker-dealer that were interested in making a change. In the first year or two, I had three advisors move over with me, so I got my series 24. I hadn’t planned on that.”

From that point, Terhorst said, it was “casual referral growth” for his growing firm, Diversified Wealth Management, LLC. A few advisors from AXA, his former insurance-based broker-dealer, had joined him and were spreading word of the OSJ model to others that were considering a change. Looking back, Terhorst admits the early growth period was the product of “word-of-mouth” recruiting.

 

Balancing an OSJ Role with Personal Business

As the OSJ group expanded, Terhorst recognized the need for additional help. In 2005, he hired industry veteran Jennifer Nelson to help manage his personal practice and to assist with supervisory duties. Jennifer’s licensing and experience allowed them to take a more efficient approach to supervision.

“Until I had someone like Jennifer to help support my practice and take on supervision responsibilities, I was uncertain about my ability to do both,” Terhorst said. “Jennifer knows the industry, knows my clients and has the respect of all the advisors in the group.”

Even with Nelson taking charge of supervisory responsibilities, the casual growth continued, leaving Terhorst wrestling with a new set of business challenges. In addition to his expanding OSJ duties, he continued to manage his own growing list of clients, which proved to be vital to his recruiting success.

Rather than needing to structure a larger override from advisors, Terhorst was able to rely on his own book of business to provide the bulk of his personal income – a practice he continues to follow today. He credits that arrangement as one of the reasons he has been successful at bringing on many of the firm’s partners and advisors over the past 10 years.

“Thankfully, I can price the OSJ services at a level that’s attractive,” Terhorst said. “My pricing doesn’t need to be aggressive as long as my practice provides the bulk of my personal income. Even though I enjoy being an OSJ, my primary focus has to be my practice. I have a spectacular team that I rely on to handle the bulk of the daily OSJ responsibilities. If the OSJ group went away, I always want to know that I would be comfortable with just my personal practice. When I took on the role of OSJ, I was used to the cycle and process of obtaining new personal clients for my practice. I was not familiar with the cycle, process and time frame of bringing on an advisor to the group. That recruiting and on-boarding process takes far more time, effort, attention and prep.

Knowing he was being pulled in too many directions as his practice expanded, Terhorst brought on Pete Zvanovec as an associate advisor in 2009. After a couple years in a para-planning role, Zvanovec has since risen to vice president of client planning services for Diversified Wealth Management.

“Without having someone as reliable and skilled as Pete to work with new personal clients, the growth of our personal practice would have been much slower,” Terhorst said. “I’ve been very lucky on my timing and choices for building our team. My practice growth and the OSJ growth have corresponded closely with bringing on key team members. Because of those decisions, I can be flexible with the time spent on the OSJ versus my personal practice.”

 

The ‘Independent Financial Advisors Consortium’ Model

By early 2012, Diversified Wealth Management had established a solid infrastructure including additional support staff along with Terhorst’s key team members. Forming a close relationship with the Securities America branch office development recruiters Sam and Scott Briganti allowed Terhorst to take his recruiting efforts to the next level.

“I hadn’t made specific efforts to get organized with recruiting until two or three years ago,” Terhorst said. “Working with the recruiters at Securities America has helped me to understand the process and get more organized. I give credit for the push forward and much of the group’s recent growth to Sam and Scott.”

Terhorst has found synergies with the Brigantis to help develop the on-boarding process and learn how to recruit.

“Actual recruiting is a special skill that takes work and needs to be learned. Sam and Scott are very talented and have been incredibly valuable to my OSJ growth,” he said.

For even greater operational efficiency, Terhorst brought on a dedicated director of compliance and supervision, Shelly Slattery. With Slattery’s background of supervising 80 independent advisors with a previous broker-dealer, the group now has the ability to expand further without as many growing pains.

“Shelly has brought additional expertise in the compliance area to the group and helped to take pressure off Jennifer and myself. She has made it possible for us to take a team approach to supervision, recruiting and on-boarding,” Terhorst said.

Terhorst also added a new advisor with a background as a para-planner to the group in 2014. Chris Beck provides the needed planning and practice management support to the group as he builds his own personal book of business.

“Chris adds an important function to the OSJ team and my personal practice that allows us to be as efficient as possible,” Terhorst said.

The Diversified Wealth Management OSJ is structured as an “independent financial advisors consortium.” That model allows it to function as a “true producers group,” with some advisors running a more commission-based business and others more advisory business.

“It’s eclectic, how we approach the business,” Terhorst said. “Most of the advisors are doing business under the name Diversified Wealth Management; others do business under another name. That’s fine with me. We share knowledge, expertise, practice management ideas, product ideas and even do joint work and case consulting. There is never one right way of doing anything in our industry.”

The last half of 2015 brought even more growth to the OSJ group. In July of 2015, a group of 13 advisors from the Compass Group of Fort Wayne, Indiana, came on board. That group was previously with Fintegra, where they managed $300 million in client assets. Two other Twin Cities based advisors who manage a combined $29 million in client assets joined the Diversified Wealth Management group in August and September.

In October, seven former AXA advisors who manage $100 million in client assets, joined six other former AXA colleagues that had come over in 2011 to the Diversified Wealth Management group.

“The group of advisors in Fargo has an incredible depth of knowledge and experience in the financial services industry. They also come from the same
background as many of the existing advisors in our group,” Terhorst said. “Like the advisors in the Bismarck, North Dakota, group, who joined our group in 2011, they are skilled professionals who are enjoyable to work with. We feel very fortunate to have these advisors and their staff in our consortium and call them our partners.”

With the latest additions, Diversified Wealth Management has 32 advisors and eight staff members. When advisors doing business under other practice names are added in, the OSJ has 49 total advisors with 13 staff members in four states. The average tenure in the business of all the advisors in the group is more than 20 years.

 

Looking Ahead

The rapid growth has given Terhorst an unexpected and exhilarating ride for the past several years. Looking forward, he said he plans to slow the pace to focus on other areas of the business.

“The growth may slow down a bit depending on how much activity Securities America’s recruiters bring to the table,” Terhorst said. “We will take some time to make sure we have the right systems and support staff in place to function as efficiently as possible.”

Reflecting on his expansion, Terhorst said he owes his success to having the right people around him at the right time.

“I never imagined growing like this. It’s not that I didn’t want it or that I don’t appreciate it. I have to give credit to the team,” Terhorst said. “I’ve joked about it before. If I didn’t have such a talented internal OSJ team and partners, I wouldn’t be an OSJ. It’s about having the right kind of people and having a good relationship and support from the broker-dealer and recruiters.”

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