As everyone connected to the retail brokerage industry knows, the last decade has seen an explosion in fee-based accounts. Buying stocks and bonds for individual clients on a commission basis was seen to be a conflict of interest. If a broker can recommend money managers for his clients' portfolios, then the broker is on the same side of the desk as the client. If the investment performance is bad, the broker and the client together fire the money manager and find someone else. In the meantime, any transactions are paid for under the auspices of the all-in-one wrap account.

Many trends and quite a bit of pressure have contributed to this. Brokerage firms wanted to protect the client from rogue or churning brokers by removing the incentive to buy or sell a security for a commission. In addition, the firms liked the predictability of revenue streams from fee-based accounts. Finally, training brokers to pick stocks and bonds became overwhelming. It's simpler to train on asset allocation, financial planning and sales skills than on the art of picking a winning stock--especially when money managers can do it better. Investment firms have actually outsourced the stock-picking part of the job that most of the investing public thinks is one of the primary duties of the traditional stockbroker.

When fee-based wrap accounts started gaining traction, fees for matching a client to a money manager ran as high as 3%. At the time, one wirehouse broker boldly predicted that many of the advisers who were doing business exclusively on a fee basis would become disenchanted as time went by: "This business [of matching money to money managers for a fee] will become commoditized, and fees will come down. These advisers will not be offering their clients anything different from the guy across the street."

As we all know, fees have gone down tremendously. To a certain extent, the broker quoted above was prescient, because almost every firm offers the service of matching clients' money with a money manager. In addition, as time has gone by, firms have created many different types of fee-based accounts. These include nondiscretionary trading accounts, advice accounts and mutual fund wrap accounts. When discussing a recruit, hiring branch managers all ask what percentage of the broker's business is fee-based, with greater clearly being better. The fee-based broker is presumed to be cleaner compliance-wise, with a predictable revenue stream.

That predictability, however, presumes that the adviser has the loyalty of his clients. Indeed, this is still the case if the level of service the adviser gives is exemplary. But if the adviser has been giving marginal service, then when this individual changes firms, his accounts are extremely vulnerable to the wooing of ex-colleagues at his old firm.

The quality transactional brokers are forced--due to the nature of their business--to talk with their clients every day. One unabashedly transactional broker at a wirehouse, who has produced more than $1 million for each of the last 10 years, quoted one of his clients this way: "I like the fact that when I call you, I get a call back. You call me back promptly, because there is a chance that there is a transaction to be had. I know that your knowledge and experience is built into the commissions, which I know I could do much more cheaply online, without your advice. If you abuse this relationship, you lose me as a client."

Of course, this scenario presumes that the transactional broker, with the help of a quality brokerage firm's research department, is actually good at managing portfolios.

Transactional brokers got a bad name because many of them only sold what the hot stock of the day was. The sales manager would hold a meeting in the morning touting the wonders of XYZ stock. The salesmen would leave the meeting pumped up and start going through their clients one by one, pitching them on XYZ stock. Every client got the same pitch. Results were posted in the branch during the course of the day. This type of huckster is vilified in movies like Boiler Room and ridiculed in the episode of TV's Taxi where Louie De Palma becomes a stockbroker after he loses his job as a taxi dispatcher.

But the best of the transactional brokers are professionals of the highest order who have some of the greatest client loyalty in the industry--and they share many of the same qualities. For example:

1) They are passionate about the stock market. These brokers were attracted to this trade because of a lifelong passion for the ups and downs of the market. Ask them about their interests, and they'll tell you a story about stock-picking at a young age.