Independent broker/dealers gathered in “Hot-lanta” at the Buckhead InterContinental Hotel for the SIA’s Second Annual Independent Firms conference on Tuesday, but, despite the beautiful weather, the usual clouds lingered.

Mark Lackritz, president of the SIA, kicked things off with his customarily self-effacing intro followed by a rundown of what the SIA is doing in Washington, D.C., to promote the industry’s interests, including drumming up support of Rep. John Boehner’s (R-Ohio) bill to let reps provide investing advice to 401(k) participants, and seeking to extend the capital-gains and dividend tax breaks from 2008 to 2010. He went on to applaud the independent brokerage industry’s growth: more than 120,000 advisors at more than 25,000 firms controlling more than $2.5 trillion in assets. Additionally, the top 25 firms amassed nearly $10 billion in revenues in 2005, an 18 percent increase from 2004.

Mark Casady, president and CEO of Linsco/Private Ledger (LPL), followed Lackritz as the keynote speaker and, not surprisingly, heaped more praise on the independent model. LPL, with its more than 6,500 advisors, has a lot to cheer about lately: It increased revenues by 22 percent, to $1.4 billion, in 2005.

But not all firms are doing so well. Mark Tibergien, a consultant with Moss Adams and the much-anticipated third speaker, said it this way in his speech: “Some of what I will have to say will sound like a downer.” He smiled and continued, “But consultants have to look at problems first.” Net operating profit margins continue to be weak: 1.4 percent in 2004 (most recent figures available)—down from 3.4 percent in 1998. (Of course, 2004’s weak margins were better than during the bear market when the average IBD lost money.) According to Tibergien, 29 percent of IBDs recorded a financial loss in 2004, an improvement from 38 percent in 2003, but still a “downer.”

Tibergien compares IBDs to the auto and airline industries, where profit margins have fallen dramatically despite a consistent need and desire for their services and products. A large source of the problem is a tolerance for underperforming advisors. He says the median revenue per advisor in 2004 was $84,517. “When you have advisors producing less than $100,000, it costs you 4.5 cents per dollar,” he says. “You have to ask yourself if you can afford to support these people.” According to a published study, LPL has 3,176 advisors that produce more than $100,000, the most of all the independent firms, followed by Raymond James Financial Services, which has 2,149 reps above that threshold. According to Tibergien, independent advisors producing $50,000 in annual production overhead costs 27 percent of revenue, a percentage that falls to 12 percent for those producing more than $300,000 in annual revenue.

Michael Williams, a conference speaker and a managing director with Tocqueville Asset Management in New York, says that the traditional independent advisor will need to alter his approach to get the attention of wealthy retiring boomers. “They’re not going to want to hear it’s just you,” says Williams of the common conception of a solo practitioner independent advisor. “There has to be a strong team of people that will be able to provide a deep menu of services and access to every type of investment, not just stocks, bonds and mutual funds.”

After all, says Williams, 50 percent of people reaching the age of 65 today will live to 90. “These people are still in the growth phase, they’re going to be bored stiff if you’re going to talk to them about stocks, bonds and funds,” he says. To satisfy the truly wealthy client, FAs will need to offer many financial-planning services as well as other professional services, like investment banking, direct real estate investing, private equity and hedge funds, to name a few.

The advice for FAs: Adopt more of a team approach—with junior advisors and an administrative team supporting a lead advisor, or what Tibergien calls an “ensemble practice model.” If you do so, you will produce more and your margins will increase. Says Tibergien: “This is a great business that has some needed changes to be made but the good news is none of them can’t be changed at a time when the market place is demanding advice.”