On Recruiting

The biggest teams are not going independent for financial reasons

Policies and procedures which, when layered upon already onerous rules and regulations, fail to recognize advisers' years of experience and wisdom

Feb 16, 2016 @ 12:18 pm

By Danny Sarch

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When a $300,000 wirehouse producer breaks away to go independent, he will earn almost twice as much take-home pay under the new model than he did as an employee. (Thirty percent payout as an employee goes to a 60% payout after expenses when independent.)

When a million-dollar wirehouse adviser sets up her own firm, however, she will earn only nominally more than she did as an employee. (Forty-five percent payout, plus deferred compensation, paying for most of an assistant, and benefits, adds up to about 55% “real” payout as an employee, only slightly less than the 60% earned as an independent business owner). In addition, she is forgoing a wirehouse deal, which would surpass 300% of her trailing 12 months' gross production if she had chosen to move to another wirehouse.

So why are so many large wirehouse teams choosing the supposed aggravation of running their own businesses for only slightly more take-home pay and simultaneously turning down humongous signing bonuses?

They are tired of policies and procedures which, when layered upon already onerous rules and regulations, fail to recognize their individuality or their years of experience and wisdom.

When my daughter turns 17 in a few months, she will automatically have a senior driver's license with all the rights and privileges that my wife and I have. The laws of New York say that it will be legal for her to drive in New York City or California. Cautious parents, and common sense, however, choose to limit the length of her trips and where she goes because she is, well, 17, and has had her junior license for less than a year. While the New York state driving laws treat both me and my daughter equally, “management” (my wife and I) recognizes that my many years of getting us to our destination safely have earned me more leeway. Our family policy therefore only limits my daughter and not me (35 years of experience behind the wheel) with constraints beyond the law.

In the wealth management business, however, a wirehouse adviser with 30 years of experience is not treated differently than the adviser with two years of experience. The big firms treat the veteran adviser with a clean compliance record as if he or she is as likely to crash their car as the newly licensed adviser fresh out of the training program.

How often do you see a wirehouse adviser quoted in the mainstream press, or in the trade press for that matter? The biggest firms are afraid of the franchise risk attached to an inadvertent comment, and therefore forbid their advisers to talk to the press. Websites at the wirehouses are usually cookie-cutter, simple brochures. The language on these sites, from adviser to adviser within the same firm, is often exactly the same. The wirehouses are simply afraid to give their advisers the freedom to market themselves in a way that fits either their niche or their location.

As the years have gone by, the wirehouses have become stricter in terms of how a given adviser should price his or her services while penalizing advisers for charging too little or for servicing accounts that are deemed too small.

Every wirehouse firm has hundreds, if not thousands, of advisers who truly strive to do the right thing all the time for their clients. These advisers, though originally trained as stockbrokers, are passionate about their professionalism, service and performance. They have track records and compliance records that should be celebrated. They should be allowed to differentiate themselves from their less experienced, less accomplished colleagues. And they are tired of being managed based on the lowest common denominator at their own firms so that they are unable to price or market themselves the way that they want.

The best advisers have more options today than ever before. They realize that they are the brand, and they have the loyalty of their clients. Tired of illogical policies that do not recognize their unique practices and skills, the best advisers are going out on their own and seeking independence and freedom — more than ever before.

Will the wirehouses be able to change their cultures in order to save their franchises? Or will they become like the proverbial frog, not recognizing the steadily boiling water until it is too late to change?


What do you think?

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