This financial services firm was built on the idea that strong relationships with representatives lead to satisfied, long-term customers. Michael Stanfield explains.

When service is the name of the game, relationships mean everything. Just ask Michael Stanfield, CEO of VSR Financial Services, Inc. He co-founded the Overland Park, Kan.-based company in 1985 with the understanding that strong relationships with independent representatives lead to strong relationships with end-customers.

VSR Financial Services is an independent, full-service securities broker/dealer. The firm approves various securities offered by numerous product providers and presents the best of the best to its network of more than 250 independent representatives across the country. In turn, the representatives have the autonomy to offer a combination of securities products they feel best meets their customers’ needs.

According to Stanfield, the market consists of five categories of broker/dealers: large national firms, regional firms, insurance-affiliated brokers, discount brokers, and independent firms. “By far, the independent channel is the fastest growing,” he said. “Experienced representatives have control over their destiny working with an independent firm because they can build their own businesses. As employees of a large national or regional firm, they don’t have that freedom.”

Michael Stanfield

Nearly 98% of VSR’s clientele are small businesses and individuals. The company chose to compete in this arena because it not only had expertise in traditional investments, such as stocks, bonds, and mutual funds, but it also has an intricate knowledge of alternative investments, such as real estate and energy. Stanfield explained that several real estate companies create REITs (real estate investment trusts) and present them to VSR. The firm then decides which ones are appropriate for its client base. Similarly, VSR has long-term relationships with oil and gas companies, which provide it with a steady supply of energy investments.

Sustained growth
To build strong relationships with its representatives, VSR plays an administrative role, not an authoritative one. “Our job is not to tell our representatives what to sell and to whom. Instead, we provide them with the tools of the trade and support them with back-office functions,” said Stanfield.

Reps take comfort in VSR’s controlled growth strategy, which ensures the firm will never grow so fast that it loses the ability to support them. “We’ve seen successful financial services firms grow too fast, to the point they couldn’t return phone calls and e-mails.” In fact, VSR has turned down several acquisition opportunities and offers from venture capital firms. By growing slowly but steadily, VSR has maintained one of the lowest representative turnover rates in the industry—about 1%.

tanfield noted that in his experience, VSR’s staff will gladly put in the extra hours to get the job done, but they won’t do it forever. “They burn out. If you only bring on a handful of representatives at a time, everyone gets through the transition in better shape.”

A monthly profit sharing system also contributes to VSR’s low employee turnover rate. Stanfield explained that to motivate representatives and/or employees, financial services companies historically relied on yearly bonuses contingent on their financial performance. VSR believed that employees would think more entrepreneurially if they received financial rewards more frequently. In any given month, an individual’s base pay can increase up to 49% or decrease 20%, but fortunately the firm has seen mostly positive returns since it initiated the program in 1992. “It gets all of the employees in the company watching our performance on a daily basis.”

VSR spends practically nothing on advertising to recruit new representatives. Instead, the firm relies on referrals from existing representatives and product providers. “That also keeps the turnover low because people are starting here with a good recommendation, which weighs much more than a magazine or television advertisement.”

Planning ahead
Although Stanfield and his partner, Don Beary, are not ready to retire, they have begun planning a stable future for the company—one that does not include selling to a larger broker/dealer. “One of our representatives recently said he’d rather have a root canal than change broker/dealers. Changing broker/dealers is expensive and time consuming for the representative and confusing for customers,” said Stanfield.

The firm started by hiring a succession planning consultant who pointed out that VSR needed to operate more like a C-corporation rather than a partnership. Until recently, Stanfield explained, the firm’s founders did not report to a formal board of directors. Instead, he and Beary made the majority of decisions.

VSR’s consultant guided the board of directors through a governance training program that ran from November of 2004 to December of 2005. The firm took another step toward succession planning when it hired a new president in June 2007. “That is probably the most tangible evidence that our succession planning strategy is taking shape. He will become CEO when I decide to step down—with board approval, of course,” Stanfield chuckled. The new president was chosen partly for his experience selling securities as representatives appreciate and respect a leader who has walked in their shoes.

“As a 22-year-old company with projected revenues of $100 million in 2007, we’ve outgrown that awkward stage where the focus is on survival. We’re in the more difficult stage of envisioning where the company will be in five or 10 years. We sell one thing—service—and the people who provide it are certainly not interested in seeing the firm sold, or even worse, disappear. We’re going to keep VSR intact.”