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The Fee Experts® and the Hybrid Model

Back in the early 1990s, fee business in the broker-dealer channel of the financial services industry was rare and largely ignored. To many in the industry, fee business was feared as a means of making the broker-dealer model obsolete. But Eric Schwartz, founder of Cambridge Investment Research, Inc. (Cambridge), embarked on a radical vision that led to an industry changing model. Cambridge created a hybrid model supporting freedom of choice and open architecture fee and commission platforms.

Fee business is based on a form of compensation paid by the client for services provided by their financial planner, and the fees are not the result of the purchase or sale of any financial product. In comparison, commissions are a common third-party compensation method generated from the purchase or sale of a financial product or service.

A broker-dealer is a company that processes the investment business of affiliated registered representatives (rep-advisors). In the United States, a broker-dealer has to be registered with the Financial Industry Regulatory Authority (FINRA) and is responsible for following securities laws. The broker-dealer must also ensure that affiliated rep-advisors are properly licensed, avoid conflicts of interest, demonstrate responsibility, and properly complete and maintain paperwork, as well as follow securities laws.

Pioneering the Hybrid Model

Over the last two decades, the Cambridge approach to fee-based and commission business resolved a challenging business issue and transformed the broker-dealer industry. According to Schwartz, defining and following a new business model didn’t begin easily. “Twenty years ago, our broker-dealer firm lost our two biggest offices – or about 75 percent of our revenue – because those offices decided to forgo all commissions and become fee-only. My first response was fear, anger, and a conclusion that the broker-dealer business was an obsolete model. But, a few years later, after really listening to financial planners who wanted to do more fee business, we designed the Cambridge way of making it easy to do both fee and commission business,” said Schwartz. “Cambridge has achieved incredible results.”

The Fee Experts®

Widely recognized across the industry as the pioneer of the hybrid approach, Cambridge has clearly earned its reputation as The Fee Experts®1. Today, many experts agree that fee business is an important approach to serving clients, and it may one day dominate the industry. The hybrid market has emerged as a major trend and leading independent broker-dealer firms are quick to announce their support of both platforms as more and more rep-advisors seek opportunities to serve their clients with fee and commission practices.

Fee-based business, the hybrid fee and commission business model, and the independent broker-dealer channel have gone from niche markets to a huge and rapidly growing segment of the financial services industry. Cambridge is positioned in the top-tier category of independent broker-dealer firms, for example, Cambridge ranks eighth in Financial Planning magazine's 2016 FP502 survey of firms.

A Commitment to True Independence

Cambridge is one of the two remaining large, privately owned, and independent broker-dealers. Owned by its senior management team, Cambridge believes this is important to its ability to act as a truly independent broker-dealer and operate with an unbiased view and approach to financial services products.

Although it serves more than 3,000 rep-advisors across the country, Cambridge has been based in the great plains of the Midwest since 1992. Having begun with only a handful of associates, the number grew to 85 in 2002 and now includes 7003 associates. The firm continues to grow and is beginning early plans to add a third building to its corporate campus in order to the accommodate growth and ability to best serve the solutions delivered to the ever increasing family of rep-advisors choosing Cambridge as their broker-dealer. The Cambridge campus currently includes building I and II – both are 40,000 square foot office buildings, completed in 2005 and 2009, respectively. The 60-acre campus features a pond with a half mile walking trail used daily by associates.

Unwavering Values of Integrity, Commitment, Flexibility, and Kindness   

Although Cambridge’s growth is impressive, the best part of the Cambridge story may be its longstanding culture and values. A firm’s culture influences its reputation. Further, a firm’s stated mission and values can be compared to how the firm’s management and staff engage with advisors and manage business activity. Since its earliest days, the management and associates at Cambridge have been committed to a set of core values that shape everything the firm does – especially the quality of service delivered to financial professionals and their clients. In short, Cambridge is proud that advisors who share their values of integrity, commitment, flexibility, and kindness choose Cambridge. Together, we focus on a common priority: you.

1THE FEE EXPERTS® is a registered trade mark of Cambridge Investment Research, Inc. for its investment advisory service for investment managers.
2Financial Planning magazine, June “FP50” issue, 2016
3As of June 30, 2016

Securities offered through Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC, and investment advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Both are wholly-owned subsidiaries of Cambridge Investment Group, Inc.