Danny Sarch

On Recruiting

Veteran brokerage recruiter Danny Sarch offers his inside, candid point-of-view on the industry in this exclusive InvestmentNews blog.

Aug 12, 2016, 6:24 PM EST

We need a new vocabulary in the wealth management industry

By Danny Sarch

It seems to me that the wealth management industry has grown out of the traditional labels that we have used for decades to describe various companies, causing tremendous confusion for both clients and industry insiders. Let's take, for example, the term “wirehouse.” The term was originally meant to describe an investment firm which had multiple offices which communicated with their home office via “wire.” Clearly this definition is archaic. However, if you ask anyone in the wealth management industry to list the wirehouses today, a vast majority would give you the names of same four firms: UBS, Merrill Lynch, Wells Fargo and Morgan Stanley. After all, these are the largest, right? Well, no. Ameriprise is larger than UBS and Edward Jones has more branches, if not more advisers, than all of them (though their business model is one adviser per branch). Perhaps these are the national firms, you say, and therefore... Read full post

Jun 3, 2016, 2:09 PM EST

Why Finra needs to fix BrokerCheck now

By Danny Sarch

Richard Ketchum, head of the Financial Industry Regulatory Authority Inc., recently warned brokerage firms that they need to create a culture of compliance which prevents high-risk advisers from harming investors. As quoted in InvestmentNews, Mr. Ketchum said: “No firm that tolerates such a concentration of 'high-risk' advisers should do so without expecting searching questions from Finra as to the special supervisory steps they have taken to ensure no further bad actions.” With the Securities and Exchange Commission likely to soon announce their own version of a fiduciary standard for non-ERISA accounts on the heels of the recent Labor Department rule, there appears to be a tremendous amount of momentum around exposing and eliminating bad behavior by bad brokers. One of the tools to expose problem brokers is BrokerCheck.Finra's BrokerCheck used to be an obscure tool used only by industry insiders to check the employment... Read full post

May 9, 2016, 6:37 AM EST

How the DOL fiduciary rule could affect financial adviser recruiting

By Danny Sarch

As everyone in the industry knows by now, the Department of Labor issued a 1,023 page document in April which defines a new fiduciary standard for broker-dealers who have clients with assets held in retirement accounts. All of the brokerage firms are studying the document and figuring out what they will have to do at both the corporate level and at the adviser level to comply. Definitive communication from the top to the adviser level about what will be expected of the adviser under the new regulation has yet to happen. What will be the new rule's effect on adviser movement and recruiting?1. Advisers who are already considering making a move are paying attention to time deadlines that will be forced upon them by their current firm.Critics and proponents of the new regulation are arguing over many things, but no one disputes that firms, their advisers and their clients will have new paperwork for their clients to sign. This paperwork on ... Read full post

Apr 8, 2016, 6:54 AM EST

Brokers: Either move toward a fiduciary standard or have it forced upon you

By Danny Sarch

As everyone in the industry knows by now, the U.S. Department of Labor finally produced its fiduciary rule for retirement accounts. Fought for months by the brokerage industry, the final iteration of the new regulation gives a much longer runway for brokerage firms to be in compliance. It also creates a Best Interest Contract Exemption, or BICE, which enables clients to still pay commissions in their individual retirement accounts as long as their adviser contractually promises to adhere to a fiduciary standard. In addition to information about the rule, the DOL's website also features interviews with investors who had lost a significant percentage of their retirement assets, presumably from the result of “bad brokers.” Does the DOL truly believe the new regulation will prevent this type of behavior? I have sympathy for the families of those depicted on the website, but believe that the regulation, had it been in place,... Read full post

Mar 29, 2016, 2:48 PM EST

Lesson from Bank of America settlement with Merrill Lynch trainees: Long hours required to make it

By Danny Sarch

Bank of America recently settled a lawsuit originally filed in March 2015 that alleged Merrill Lynch had violated federal overtime compensation laws. Each aggrieved ex-Merrill Lynch trainee would be entitled to about $1,000 after legal fees were paid, according to the press coverage of the settlement.I spoke with four separate Merrill Lynch advisers, each with at least 20 years of experience, who all expressed some combination of distaste and disdain for the plaintiffs. Each adviser vividly recalls attending meetings during the 1980s where a successful veteran adviser spoke to his training class. The message from the veteran resonated with these advisers 30 years later: “Work like very few can for three years, and then you will be able to live like very few do for the next 30 years.” Long hours dedicated to establishing relationships with new clients were an understood part of the job. Methodologies varied. Some trainees... Read full post

Mar 14, 2016, 4:50 PM EST

Recruiter questions Merrill Lynch's client retention numbers

By Danny Sarch

In my opinion, no article published in the wealth management industry trade press in the last month has garnered as much attention as the Feb. 23 piece in InvestmentNews, written by Christine Idzelis, titled “Merrill Lynch keeps a tight grip on clients." In it, a Merrill Lynch spokesman claims that in the last three to five years, Merrill Lynch has retained 40%-50% of client assets during the first year following a Merrill Lynch adviser's departure.I was quoted in the article and have been asked about it numerous times by both Merrill Lynch advisers and their competitors. Competitors are wondering whether a given Merrill Lynch adviser they are recruiting will be able to deliver his or her business. And the Merrill Lynch advisers are wondering whether their business will transition. Of course, Merrill Lynch has a vested interest in both trying to retain the clients from advisers who already have departed and in scaring advisers... Read full post

Feb 16, 2016, 5:11 PM EST

The biggest teams are not going independent for financial reasons

By Danny Sarch

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... Read full post

Jan 13, 2016, 2:55 PM EST

4 adviser recruiting predictions for the year ahead

By Danny Sarch

It's time for me to give my 2016 predictions for the wealth management industry, with a focus (obviously) on recruiting:1. The trend of substantive wirehouse teams departing the wirehouses for "anything but a big firm" will continue.My own calculations show that 2015 was the second year in a row where fewer than 50% of all advisers who departed a wirehouse ended up at another wirehouse. I expect 2016 to be more of the same. (Related read: Wirehouse recruiting numbers need to be more transparent)The biggest firms have brands that are still tainted by the financial crisis. In addition, the sheer number of advisers under their umbrellas make it more likely that there will be a "bad apple" who will lead to more bad publicity. This headline risk has made the wirehouses create procedures and policies that are layered on top of Finra rules, creating an atmosphere of mistrust in their branches. Firms are bridling their advisers'... Read full post

Nov 25, 2015, 2:45 PM EST

It's the time of year when wirehouses tinker with adviser pay plans

By Danny Sarch

Ah, autumn is here in New York. Trees shed their beautifully colored leaves and Thanksgiving is upon us. As the year draws to a close, the last wave of adviser moves will hit the trade press. And the wirehouses will tinker with their payout plans as inevitably as the changing seasons, invariably aggravating some segment of their adviser population.As the wealth management business has evolved, some aspects of compensation plans have had to change. Compensation drives behavior so it is logical that brokers at the wirehouses should be encouraged to become true advisers by incentives to change to a fee-based business. But why is it necessary to create plans that are 30 pages long? And why is it necessary to change some aspect of these complicated plans every year? I want to be crystal clear: The trend over the last several years has been to take money away from advisers, either with blatant grid changes or by subtly deferring more income... Read full post

Oct 21, 2015, 7:01 AM EST

What's ahead for the broker recruiting protocol in an age of generational transition?

By Danny Sarch

In 2004, Merrill Lynch, UBS PaineWebber and Smith Barney were the founding signatories of a document called the Protocol for Broker Recruiting. Prior to 2004, brokers who departed from the big firms found themselves subject to temporary restraining orders and lawsuits that attempted to prevent them from talking to their clients. The protocol established a methodology for a broker to depart which, if followed, would no longer subject them to TROs or legal machinations. It also protected client privacy by forbidding brokers from copying their books ahead of time and providing the client data to their new firm without their clients' consent. (More: How a weekend client raid blew up and a brokerage battle went public)Eleven years later, the protocol remains intact. Broker movement, once covered only in industry trade publications, is now reported on by The Wall Street Journal. Successful moves from wirehouses prove again and again that... Read full post

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