Yet another reason for wirehouse brokers to think about going independent: the compensation incentives just aren't there anymore.
This year, average compensation for elite brokers at wirehouses — exclusive of their recruiting bonus — is expected to be $905,000, down from a high of $1.98 million between 1995 and 2003, according to recent data from Sanctuary Wealth Services LLC.
The pay comes from a variety of sources, including commissions tied to stock and bond recommendations, as well as the sale of structured products and other investments.
Meanwhile, advisers at independent firms or at independent broker-dealers are expected to pull in $875,000 in compensation, much of it coming from investment consulting work.
The fact that the pay for being independent and being a wirehouse broker are approaching parity at $900,000 is making the case for top reps to consider going indie, instead of hopping from one wirehouse to another, noted Jeff Spears, co-founder and chief executive of Sanctuary, a firm that helps breakaway brokers transition toward independence.
“There's a credible argument to be made that we're at a tipping point for elite advisers,” he said. “We're getting close to the $900,000 compensation parity between independent and wirehouse advisers.”
The firm forecasts that compensation for elite advisers will fall to the $850,000 level.
Mr. Spears's research included speaking with 60 top brokers earning more than $2 million in revenue and 25 elite registered independent advisers with at least $500 million in assets under advisement.
The after-effects of the financial crisis are still hurting Wall Street brokers as investors shy away from the most complex — and profitable — products.
“The high-margin solutions are being rejected by clients because they didn't work,” said Mr. Spears. “Those high-margin products have typically paid the broker 2% to 5% of the invested capital.” He added that these days, clients are more inclined to get fee-only advice.
Mr. Spears added that the advisers he had spoken with included dually registered independent advisers and that while they have some stock, bond and insurance business, it's a small part of what they do.
“I find that the longer an adviser has been independent, they less they emphasize stocks, bonds and hedging,” he added. “They focus on taking advantage of their knowledge of the markets to make asset allocation decisions for the clients.”