What Internet threat?
You would think that traditional brokerage firms would be dropping employees because of the increased competition from online outfits, but OC’s brick-and-mortar brokerages have followed three years of increased employment with even more gains in the past year.
The 20 firms on this week’s Business Journal list of the largest OC stock brokerages,ranked by total OC employment,reported adding 221 registered reps, a 15% gain, in the past year. Total employment also went up 15%, or by 329 employees.
Compared with last year’s 20-firm list, both the number of reps and total employment grew by 14%.
The Orange County firms almost tripled the 5.3% growth of registered reps nationally reported by the National Association of Securities Dealers.
“Everybody thought the Internet would be the demise of the industry, especially the bigger firms. But it’s just another avenue,” said Byron Roth, CEO of No. 6 Roth Capital Partners, formerly Cruttenden Roth. The Internet, through sites like Ameritrade, E-Trade and Discover Brokerage Direct, is attracting more people into buying stocks, but the traditional brokerages also are benefiting from the increased activity.
“A lot of people get this idea that they can hop on the Internet, get an account and make a lot of money. Those same investors are returning to a full-service firm to get advice,” said Robert Wolford of Hollencrest Securities LLC, an asset management firm in Newport Beach.
Even though online trading is quick and easy, many investors do not have the time to research stocks with the same efficiency as the brokers, according to several industry experts.
Information Overload
The public has the same access to research information that the big wirehouses do, but “the proliferation of information is sometimes too much,” Wolford said. Also, as the portfolios get bigger the risks also increase and many investors hand over their portfolios to a brokerage.
Many of the large brokerages, most of which were originally opposed to online trading, now offer online trading or research access.
Firms also need more brokers to increase their trading volumes, since transaction rates have been dropping the past few years. Cheap online trading and faster trading technology have contributed to the lowered fees. Institutional trading has gone down from 5 or 6 cents a share, to 2 or 3 cents a share.
“That’s a big haircut,” Wolford said, adding, “Pretty soon it will be free.”
No. 1 on this year’s list is Merrill Lynch & Co, which added 15 employees and 13 brokers from last year, increases of 3% and 4% respectively.
“Normal expansion,” said Peter Case, a senior district vice president in Merrill Lynch’s Irvine office.
“It continues a trend that has taken place over the last eight years. We think the long-term prospects for the economy are quite bright, not just here, but around the world,” Case said.
Merrill Lynch saw its assets under management worldwide jump past the $1.5 trillion mark last year.
Areas of Growth
An area of growth for the firm is its online financial services site, Merrill Lynch Direct, Case said.
“The Internet is becoming a powerful tool,” Case said.
Small-business financial services is another area of strong growth for the firm, Case said, and it also has a trust office in Orange County to cater to high-net-worth individuals.
Even though Merrill Lynch is repeating as No. 1, No. 2 Morgan Stanley Dean Witter had better growth, increasing its employment by 31% to 374 employees. The firm grew its broker staff by 21%, to 274. The firm declined to comment for this story.
No. 3, Salomon Smith Barney grew its employees by 23% and its reps by 20%.
Paine Webber Inc. remains at No. 4 this year even though it outpaced the top three firms in growth, increasing its employees by 39% and its reps by 52%. Don Dalis, senior vice president and complex manager at Paine Webber’s Newport Beach office, attributed the growth to the bullish stock market and the exposure the Internet brings.
“The information has opened up to make the market more interesting and available,” Dalis said.
Small Caps Boost Growth
Roth Capital Partners added eight brokers and 15 other employees. Roth attributes the growth to the market his firm is in, the small-cap stocks.
“People are looking for more risk, for more reward,” he said. Private placement also has been a significant part of his firm’s growth, added Roth.
No. 12 Brookstreet Securities Corp. increased its OC representatives to 95, up 73% from last year. That is more than double the Irvine-based firm’s nationwide growth of 36% to 300 reps. The Irvine-based brokerage firm was started in Stanley Brooks’ home in 1990 and is on track to pull in $60 million in revenue this year, according to Brooks, the firm’s president.
The firm has grown 50 to 60 people per year, Brooks said, and he expects the same for the future. He attributed the growth to the increased interest in the stock market as a result of increased Internet trading.
“Too much information causes people to make the wrong decisions. They’ll look for a professional to help them with their portfolio,” Brooks said. n
