CKBlog: Standards

Tuesday, February 28, 2017

Has Your Wirehouse Broker Moved Recently?

by Steve Haberstroh, Partner

If so, ask her why?

A February 27, 2017 Bloomberg article entitled, Shrinking Bonuses Slow the Revolving Door of Wall Street Brokers, tells you what is behind many of these moves.

For years, top Wall Street financial advisers have cashed in on client relationships by jumping to rivals offering rich recruitment packages. But those multimillion-dollar deals abruptly crumbled in October when the Department of Labor briefed banks ahead of the April implementation of its so-called fiduciary rule. Major firms including Morgan Stanley and Bank of America Corp.‘s Merrill Lynch soon restructured their enticements, typically offering at least 25 percent less than before, according to the people. And even though the rule’s future is now in doubt, its impact on bonuses endures.

“Right this second, I find almost nobody moving,” said Michael King, a New York-based recruiter. “Unless there’s a special situation they’re trying to fix, like if they hate their manager, people are waiting to see if the bonuses come back.”

So let me get this straight. Wirehouses are lowering the up-front “bonuses” to attract brokers from a competing firm because the Department of Labor is forcing them to do what is in the end client’s best interest?  If that is true, then what is also true is that large up-front bonuses are not in the end clients’ best interests.

To be fair, there can be many legitimate reasons to change banks/platforms. But try to imagine your broker sitting in front of a multi-million-dollar carrot.

Signing bonuses are calculated based on an adviser’s trailing 12-month revenue, which includes fees and commissions. Before the Labor Department issued guidance in October, top performers could expect total incentive packages equal to about 330 percent of their revenue.

That meant an adviser with $200 million in assets under management producing about $2 million in annual revenue could expect a deal worth $6.6 million. The payouts were split between upfront bonuses and back-end awards spread over about a decade. To collect the full package, the recruit had to hit certain production targets.

Let me clarify. In order to collect the $6.6 million, advisers had to hit production goals, as in sell you more stuff.

As an independent SEC Registered Investment Advisor (RIA) we are not compensated by the custodians and brokers where our client assets are held. You, the client, are the only one who pays us. And it is in the form of a flat, transparent fee based on the assets we manage for you. If and when we recommend a move to a new custodian or broker, it will be purely based on the institution’s financial stability, competitive pricing (stock, bond and fund transaction costs), service model, and their ability to deliver an open architecture. It won’t be based on a large carrot.

The Bloomberg article can be found here: