As one of Nasdaqs largest market makers, Herzog Heine Geduld (HHG) is a familiar name to many in the financial services community. From its expansive trading floor in Jersey City, N.J., the firm deals in roughly 5,000 issues--just about every company on Nasdaq.
But it might surprise some to know that HHG has also been quietly building a retail division for the past three decades. The Private Client Services Group is located across the Hudson River in the Wall Street area of Manhattan.
Serving almost 15,000 clients, the group generated roughly $13 million in revenues in fiscal 1998, ended Sept. 30, up more than 15% from 1997. And although the divisions size pales in comparison to its market-maker parent and competing retail operations, it is undergoing some dramatic changes.
About a year and a half ago, HHG executives drafted a new mission statement for retail. Turning its 62 transaction-oriented retail brokers into full-service financial advisers was the goal.
HHG executives were especially interested in reaching three core groups--investors facing retirement in the not-too-distant future, investors with elderly parents and investors with college-aged children. In other words, HHG wanted to reach more baby boomers, affluent and otherwise.
The firm established a seminar program to educate its brokers about issues relevant to people in the 35 to 54 age bracket--estate planning, insurance, taxation and college funding. A series of seminars were conducted every few weeks in 1997 and 1998 by some of the firms product vendors.
If you make brokers familiar with some things that are not just stock-ticket-oriented, they may be able to address a subject the client might not expect them to be able to converse on, says Harvey Wacht, senior vice president and director of private client services. That doesnt mean they have to be an expert. It means they just have to open up the topic for discussion. If the client needs to follow up with an expert, we can turn them on to an expert.
Listening CarefullyHHG executives reasoned that if brokers were trying to assess a clients overall financial planning needs, improving their listening skills was imperative.
Weve done that through seminars and through exposing the brokers to people who are not selling products, introducing the brokers to conceptual situations that require some thinking and some sensitive analysis, says John Herzog, HHG chairman.
By listening carefully and offering insightful advice, brokers build trusting relationships with their clients. Relationship-building allows us to grow within the family, and lets us develop other relationships we dont have, Wacht says. The firms goal is to leverage existing relationships into multiple accounts with clients extended families, each account with a slightly different objective.
Brokers Expand BusinessEnthusiasm for the new retail mission was high among corporate executives from its inception, and selling the philosophy to most of HHGs rank-and-file brokers wasnt difficult, Herzog says.
I think that what was originally perceived as a chore, very rapidly became some fresh air, Herzog says. The brokers were OK with this. We didnt have to twist their arms.
Seminars are conducted in each of Herzogs four retail branches--New York; Philadelphia; Rhinebeck, N.Y.; and Miami--so the training process is convenient. And although attendance is as mandatory as possible, according to Wacht, the sessions are tape-recorded for brokers who cant be there.
More education means more business, Wacht says. When brokers raise planning-oriented issues that clients should consider, many clients opt to expand their investments. Common additional products are long-term care insurance or second-to-die insurance, he says. That produces commissions for the broker that he never used to see, he says. The goal isnt to push its own brand of product solutions--the firm has no proprietary products, according to Wacht.
The first fruits came earlier than we thought, Herzog says. In one instance, a customer had been pitched by a number of very large firms with wonderful capabilities. However, advisers from our Rhinebeck office sat down with the customer, actually listened to what the customer was saying, and came up with a unique solution that no one had thought of. And the customer was thrilled. We got the business.
Wacht says its too early to tell exactly how much HHGs boomer-oriented philosophy has added to its coffers, but its brokers horizons have certainly expanded.
The brokers who have taken advantage of it are now able to converse on subjects they were never able to converse on, Wacht says. Its nice to be able to talk to a client about something other than just the current quote on Microsoft.
Outside of market-making circles, Herzog Heine Geduld is a relative unknown. But thats not stopping the firm from building its retail business.
We felt that it would be difficult to go out and do a big marketing campaign when many people have never heard of [Herzog Heine Geduld] and arent familiar with the firm, says John Herzog, chairman. Whereas, we already have our customers. What we really want to do is to make them better customers, and thats exactly whats happening.
While its existing clients are its first priority, the company also hopes to reach new clients through databases and mailing lists of investors who have expressed an interest in retirement planning. A newspaper ad offering the free booklet shows a pensive, 40-something man with his hands clasped over his mouth. The caption above his head reads, Ill think about it ... is not a strategy.
HHG created a handbook aimed at boomers who are procrastinating called Will the Money Last? The 56-page book addresses key elements of baby boomers financial needs like retirement and estate planning. Broader issues are also covered, including caring for aging parents, buying enough insurance and writing a will.