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Retail brokers transition into independent contractors: trend amplified by economy as ''wire houses'' cut staff. (Investment Brokerage Firms).

Article Excerpt
This year's San Diego Business Journal List of Investment Brokerage Firms represents the wide variety of investment firms available in San Diego.

Of the 13 companies featured on this year's List, four have more than 100 offices nationwide, while five have only one or two offices locally and nationally. This year's List is based on the number of registered brokers in the San Diego area as of Dec. 31, 2002.

San Diego-based AIG Advisor Group is No. 1 on The List, with 151 brokers. AIG Advisor Group is the marketing name for six broker-dealer subsidiaries of New York-based American International Group, Inc.

David Fischer, AIG senior vice president and director of national recruiting, said the major trend in the investment industry is the transition from wire houses to independent contractors.

InvestorWords.com defines a wire house as a firm whose branch offices are linked by a communications system enabling the sharing of information, research, and prices, such as Merrill Lynch or Morgan Stanley.

Wire house advisers are transaction-based employees and do everything by phone, while AIG brokers, as well as several other firms on The List, are independent contractors, available to run their own businesses and interact with their clients.

With more than 8,000 brokers nationwide, AIG Advisor Group is one of the largest independent broker-dealer networks in the nation and consists of Advantage Capital Corp., FSC Securities Corp., Royal Alliance Associates, Inc., Sentra Securities Corp., Spelman & Co., Inc., and SunAmerica Securities, Inc.

Sentra and Spelman returned joint figures last year, which ranked them at No. 2 for 2001. This year, AIG provided figures including all of their local subsidiaries.

* Economy Seen As Driving Force

AIG's parent company, American International Group, Inc., reported its 2002 net income as $5.52 billion on Feb. 13.

Fischer says the transition from wire houses has much to do with the economy, which is forcing wire houses to lay off retail brokers who aren't meeting the firms' revenue expectations.

Danny Schreiber, president of San Diego-based Granite Financial Services, agrees that it is a "difficult environment" for retail brokers. Granite is a privately held company and ranked No. 8 on The List, with 15 brokers.

"A lot of the brokers are leaving the wire houses and going independently because there are higher payouts," he said. "A lot of retail brokers ... are looking for more independence; I think they're looking to regain (the entrepreneurial spirit) of the wire house."

With only one office in San Diego, Schreiber says his company's size has allowed Granite to create a niche for itself in the investment industry.

"There is certainly less bureaucracy and we can expedite a transaction ... a lot quicker than the wire houses," Schreiber said. "We will compete with the wire house on some banking transactions, (but) we're more flexible because we are a small firm, and we're able to compete on fees."

Schreiber would not release revenue figures for 2002, but he did disclose that Granite financed Denver-based Royal Gold, Inc., whose reported earnings for 2002 were $10.6 million. Royal Gold trades on the Nasdaq under the symbol RGLD.

St. Louis-based Edward Jones ranked No. 4 on The List, with 47 brokers in its San Diego offices.

Although Edward Jones is considered a wire house, regional broker Brad Peterson said the Edward Jones model is "significantly different" than the standard wire house model.

"A normal wire house is transaction-based because they do everything by...

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