Life of a Brokerage Firm - Part 2

Ron Grossman and Ryan Griffeth conducted a series of interviews discussing the various stages of a brokerage firm. Interviews are presented here in Q&A form. There are a number of participants in this article series from brokerage firms, new individual brokers and industry professionals contributing their unique opinion and expertise. <Brokerage Firm> Scott Peterson, Stewart-Peterson How did you get started in the Commodity industry? At a previous employer, while writing market commentary and advice for a magazine, it occurred to me that many farmers and ranchers needed more than published comments. (This was before internet provided information at our fingertips.) They needed one-on-one advice that is specific to their situation. Can describe the type of business you specialize in? We specialize in hedging. We enjoy helping our clients provide time for them to do what they love to do – producing commodities and products. Helping our clients with their hedging decisions involves learning about them, creating and building relationships. This is important to us, and emphasizes why we do what we do. Has your business focus or specialization changed since you started in the business? Our specialization of hedging has not changed; our focus of building relationships and helping our clients reach their goals has not changed. What advice would you give someone starting in the business today? Visit as much as you can with the people you want to work with. Learn what they need, and what it takes to meet your clients’ expectations. Learn about the challenges you will face if your clients’ expectations are not met. Learn about the regulations involved. Then evaluate if that is something you really want to do. You must enjoy doing what it takes to sell your service, and then follow through on providing that service, regardless of the industry. What advice would you give someone struggling in the business but committed to staying the course? That really depends on their struggles, and what it will take to overcome them. In some cases, it may be best to find another firm to partner with to overcome the struggles, and in other cases it may require a consultant to help you. If your struggle is acquiring clients, take a hard look at your passion around your service. Again, if it not something you love to do, it will be clear to your prospects. Was there a key turning point in you career? A key turning point was when my business partner exited the business over 20 years ago, and I became the sole owner. It was then that running the business was totally on my shoulders. I could create the culture I wanted. I was forced to move from working “in” the business to “on” the business. With nearly 50 employees and thousands of clients, ever-increasing regulations, increased insurance and other major costs, it’s never boring! Did you have a mentor? What piece of advice stands out that you were given? I am a member of TEC (The Executive Committee), a business management organization. My group of CEOs meets monthly. Meetings with my peers has been motivational and insightful. What is the most significant change you have seen in the industry over the past 5,10 years? Two thoughts come to mind: Internet and cell phones. With the internet, anyone can get any information they want, almost immediately. They do not need a service like ours to get the facts. We have to provide clients with valuable insight and advice. Cell phones have changed how we do business. There was a day we needed to be calling early in the morning, over the noon hour, and evening hours to catch our prospects and clients near a phone. Now we can reach them almost any time of the day. Where do you see your business 10 years from now? I see our business thriving. Information will still be at everyone’s fingertips, yet we can still provide value in the individual attention we give clients. There may be many more changes in how we do business, and we’ll have to stay ahead of the factors that can make us obsolete. <Brokerage Firm> Cory Brandt, New Frontier Capital Markets What advice would you give someone starting in the business today? Being a broker is about relationship building. You need to be an active learner and have the flexibility to adjust to the customer, to the markets, and to the industry environment. As a broker, you are in a partnership with your customers, and that partnership takes time and patience to develop. It’s not about being right or wrong, or winning or losing, it’s about doing the best possible job for your customer. How are you going to differentiate yourself? Others can replicate your fundamental and technical analysis but can they work with customers and build your industry network? Build your network. Information flow is the key to your business. Focus on limited markets. Become a specialist in your market and you will have a customer base. You can know a little about a lot of things, but you need to know a lot about one thing. Always be learning, markets change, regulations change, customer needs change. Do you have the personality to succeed? Are you able to emotionally manage the peaks and valleys? What advice would you give someone struggling in the business but committed to staying the course? Take a step back and analyze your approach to managing your business. This is a customer first business. Are you struggling with the markets or are you struggling with your relationships with your customers? Are you working to solve a problem for your customer or are you trying to be a salesman? Look at what you are doing well, continue to evolve, and re-focus your effort on areas that you are struggling. There is no substitute for time and energy. This is a tough business, if you are truly committed, you need to put in the hard work. You are not always going to be right. Did you have a mentor? What piece of advice stands out that you were given? We talk to seasoned market participants daily. You have mentors that help figure out the markets and provide trading advice. Then, there are mentors that help from the personal side and business perspective. Learn from the people that have been in the trenches. You can learn a lot about what not to do by learning from other people’s mistakes. Personally - your family does not judge you by your daily P/L. Separate the markets from your family time. Emotionally - don’t get too high and don’t get too low, in other words try to avoid making the market moves personal. Trading - the market is always there, do not press when the market is going against you. What is the most significant change you have seen in the industry over the past 5-10 years? There have been many significant changes. Market structure with transition to electronic trading and increased outside market participants. Funds trading agricultural products have added more liquidity, but at the same time added volatility. When the pits were open, you had a general understanding of who was on the other side of the trades. Electronic trading, you do not know who is participating in the market. In the livestock market, reduced trading hours from 23 hrs to 4 ½ hours has helped with work/life balance. Regulatory environment with MF Global, PFG, etc. violation of customer segregated funds has added significantly to operational risk management. Additional oversight has raised the cost of business and increased the amount of time spent on tasks other than customer service and figuring out the markets. Cyber security is a major focus at this time. Working on best practices and developing policies to address cyber security is an industry work in progress. Where do you see your business 10 years from now? The industry will continue to consolidate especially with the increased cost of the regulatory environment. The increase in discount execution platforms will continue to put a premium on information flow and market specialization. The viability of the livestock contracts will need to be addressed in order to keep the hedge customers involved in the market. Demographics of the brokerage business is shifting. Brokers are retiring and needing to transition their customers to new brokers. Family farms are being turned over to the younger generation. Education will be the key going forward. Next farm generation seems to have a lower risk tolerance, but also more willingness to use the markets as a tool. <Brokerage Firm> Paul Georgy, Allendale-Inc. How did you get started in the Commodity industry? I got started in the Commodities industry because of need. I was working in the Purebred Cattle industry when things were exciting then in the early 1980’s the tax laws changed and interest rates went sky high. The highly leveraged Purebred cattle industry’s bubble broke and I had to find a way to feed my family. I was looking for a job, if I put in the effort, I would be rewarded. The futures brokerage business seemed to offer the opportunity. I started as a broker with Heinold Commodities and after a few years started Allendale Inc. with a partner, Bill Biedermann. Can describe the type of business you specialize in? When Bill and I started, our focus was on helping farmers and agricultural producers to understand the use of futures. Hedging production risk and marketing stored grain rather than just selling when they needed cash. Has your business focus or specialization changed since you started in the business? Allendale business focus has not changed. The increase in cost of producing a crop by the American farmer has increased risk today and it has become more important to manage risk by using various marketing tools. However we have made some adjustments over the years. We now find our client base is highly educated and familiar with futures and option, requiring creative strategies that can minimize their risk and manage cash flow needs. What advice would you give someone starting in the business today? As a broker I have several basic principles. Do not focus on the money (commissions) but focus on the service you are providing. Do what the customer wants. In order to find out what the customer wants you have to ask a lot of questions, then provide a benefit to fill his/her needs. This formula has worked for more than 30 years. What advice would you give someone struggling in the business but committed to staying the course? It is difficult to give a broad stroke answer that will help someone struggling. But a problem that I have seen many times is distraction. Working as a broker in the commodities industry is hard work and takes a tremendous amount of focus. There is no easy money, or at least I haven’t found it, it takes continuous effort of calling old clients sharing new ideas and calling prospects and asking questions about how you can provide a benefit. Was there a key turning point in your career? Our breakout point was when we decided to do our own research, The Allendale Advisory Report. Hitting the road and telling our story in front of anyone that would listen was the way we found quality leads. A few years ago we decided to hire personnel to improve our communication with clients and prospects. In today’s environment we find the most effective way to reach people is through social media. Did you have a mentor? What piece of advice stands out that you were given? As for as mentor, one of the best decision I made was getting involved in the NIBA. Serving on the Board of Directors allowed me to communicate with piers in the commodity industry. We shared ideas that worked for us and things that did not work. I made some long lasting friends in the industry and we always took home at least one idea that helped improve our businesses. Being involved in the NIBA also helped me recognize that the world of commodities was much bigger than I thought and that you can learn from your competition. Allendale has been a mentor to many brokers by helping them get started in the commodity industry. Many who have become successful IB owners and brokers as they started and built their business with the principle that the “Customer comes first”. What is the most significant change you have seen in the industry over the past 5-10 years? Electronic trading has been the biggest change with the efficiency of scale, making it possible to grow by providing better service. Where do you see your business 10 years from now? I think we can say for sure it is not going to look like it does today. The key to survival will be the willingness to change and adapt. We will have to be creative and comply with the regulatory structure.

Life of a Brokerage Firm - Part 2

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