Gregory S. Hurlbrink is not your father's stock broker.
As a vice president with Legg Mason Inc. of Baltimore, Mr. Hurlbrink brings an expansive view to a profession that for many is forever symbolized by a blazer-clad salesman with a hot stock tip.
Like any broker, Mr. Hurlbrink, 36, recommends his share of securities. But he's also a certified financial planner who is capable of preparing elaborate long-term investment scenarios that take a client's tax and estate planning considerations into account.
"I take a big-picture point of view with my clients," says Mr. Hurlbrink. "I'm always on the phone with their lawyers and accountants."
Brokers like Mr. Hurlbrink represent the changing face of the full- service retail brokerage profession.
A generation ago, brokers needed to do little more than execute trades to justify their commissions. But over the past two decades, the competition has intensified. Today, brokerage houses from Legg Mason to Merrill Lynch & Co. face competition from discounters, no-load mutual funds, and electronic trading firms that offer investment opportunities at a fraction of the trading costs.
As the competition has ratcheted up, so has the imperative that retail brokers provide a level of service that will continue to make them indispensable to customers.
Says Michael Campbell, the managing director of Donaldson, Lufkin & Jenrette's retail brokerage operation, "Brokers realize they have to sit up straight and add value."
In embracing this edict, brokers are transforming themselves in ways that make for a more varied and intellectually rewarding profession than in the past.
"The role of the broker is changing and the job has gotten more sophisticated in the process," said Raymond A. Mason, the chairman of Legg Mason. "It's more of an advisory role now."
Nevertheless, despite the fact that total retail brokerage revenues have been on the upswing in recent years, some competitors feel that they have the profession on the run.
Christos Cotsakos, the chief executive of E-Trade Group, a Palo Alto, Calif., electronic trading firm, is banking that a larger share of the public will be able over time to do without the helping hand of another human being when investing their money.
Says Mr. Cotsakos, with more than a trace of self-interest: "Stock brokerage is not a profession you want your children to go into."
Bill Burnham, an analyst with Piper Jaffray, a Minneapolisbased brokerage firm, projects that commissions from electronic trading will jump almost four-fold over the next four years, to $2.24 billion by 2001. By comparison, he projects that the commissions from the full-service side of the industry will just double during that period.
While Mr. Cotsakos' words might trouble a few brokers, executives with full-service brokerage houses are hardly throwing in the towel.
Indeed, virtually every major brokerage house, buoyed by a steady run-up in the stock market over the past decade, has added salespeople in the rush to serve America's affection for the markets.
Since 1990, the number of registered representatives has jumped 48%, to 110,000, according to the Securities Industry Association.
Moreover, the average compensation for a retail broker rose from $117,037 in 1994 to $142,958 in 1996, according to the association.
"The financial press is missing the fact that the full-service brokerage business is exploding," said James F. Higgins, president of Dean Witter Securities.
And executives argue that the profession will remain strong beyond the current bull market.
A certain segment of the investing population, the executives contend, will always desire the kind of customized financial advice that only full- service brokers or financial planners offer. These are people with $100,000 or more to invest.
That segment of the population is growing. According to U.S. Trust, which regularly tracks the behavior of the affluent, the number of people with TK to spend is growing at a TK % rate.
According to Raphael Soifer, an analyst with Brown Brothers Harriman, someone with a $200,000 or less can be adequately served by discount brokers, mutual funds, or an on-line account.
"But there's a crossover point where the customer says, 'This is a large enough sum now that I need advice and I'm willing to pay for it.' It's the point where it stops being just fun and starts being serious money."
Even the executive of a leading discount broker sees things that way.
"I truly believe that there is a place for full-service brokers and you will see firms like Merrill Lynch and Smith Barney adding brokers," said Tom Quick, the president of Quick & Reilly. "There is a group of investors out there that don't have the time or the inclination to be involved with their portfolios."
In the meantime, brokers, in an effort to stay ahead of the competition, are changing how they do business.
Gone are the days when a broker merely touted the stocks and bonds that his firm's research department was pushing. Today, brokers are emerging as full-range investment advisers, pushing products like mutual fund accounts that are balanced to meet an clients risk tolerance. Brokers - or investment counselors as they are sometimes called - even perform sophisticated long-range investment scenarios and current cash-flow analysis for clients.
The broker of today gets far more training than his counterpart of 20 or 30 years ago, particularly those at the major national firms like Merrill Lynch, Paine Webber, and Dean Witter, and the better regional and boutique firms.
And much of that training is related to tailoring a mix of products to suit the particular needs of a client. "In the old days, you bought and sold stock, but now you need to know more about the client than you need to know about the stock market," said Richard Capalbo, a vice president in Merrill Lynch's Los Angeles office.
While most brokers still have no more than a bachelor's degree, an increasing number have MBAs and even degrees in certified financial planning.
Central to this transformation is the way that brokers are getting paid. Traditionally, brokers generated income through commissions on trades. With such a system for compensation, brokers often churned accounts so they could generate greater commissions.
But in the past five years, an increasing share of brokerage income comes from flat fees tied to assets managed. Such a system puts the emphasis on generating higher returns rather than frequency of trades.
Mr. Mason says that revenues derived from management fees now constitute about 23% of the firm's top line, a jump from 7% five years ago.
At the same time, the turnover ratio of the average stock portfolio is 80%, about half of what it was five years ago.
Brokerage executives are banking that the move away from account churning will only help them win the support of additional investors.
And while technology is viewed as a competitive threat for the traditional brokerage, many full-service brokers are giving away on-line hookups as a feature of their fee-based services. A DLJ client, for example, can gain on-line access to his account, as well as to the research of the firm, with a few clicks of a mouse.
When Legg Mason's Mr. Hurlbrink looks into the future, he doesn't see a world in which he is forced out of his profession because people with his skills are no longer needed.
"I don't think that everyone is going to be making significant financial decisions after dinner, on the Internet," he said. "There will always be the need for the qualified professional."
