Advice for Wirehouse Brokers: Make Them Pay
- Joshua M Brown
- October 22nd, 2012
I have a lot of friends and colleagues at wirehouse brokerage firms, some of them are among the best advisors I know. One of the biggest mistakes I made with my career early on was not beginning at a giant firm (I joined a small regional brokerage out of college instead, working with a family friend). So I offer this bit of advice to my wirehouse readers and friends with all due respect:
When negotiating with your current wirehouse firm or a new one you’re considering joining, please please please remember to make them pay. Make them pay dearly for your services and your presence. Make them dig deep to find the dough that makes it worth your while.
Make them pay with the full knowledge that you have more alternatives now than ever before. There is Raymond James and LPL. There is Elliot Weissbluth and his team at HighTower. There are the RIA-supporting brokers like Interactive, TD and Schwab. There is nothing you cannot get now – research, product, support or otherwise – outside of the wirehouse fortress walls. The advantages of size have been erased by progress and consumer tastes. Everyone knows it. Unless you enjoy pushing mortgage refis or structured products. In which case, the Herd and the Stagecoach cannot be beat. But otherwise…
Make them pay knowing full well that the system is crumbling anyway, with or without you. Please don’t take my word for it. Here’s Cerulli Associates (via AdvisorOne):
There were about 51,750 wirehouse reps as of year-end 2011, according to Cerulli, down from 56,900 in 2007. That’s a four-year compound annual decrease of about 2.5%. From 2010 to 2011, though, the wirehouse channel added about 700 advisors for a one-year growth rate of 1.4%.
This year’s study, the consulting group notes, included input from 6,000 advisors across a variety of FA channels, up from 1,500 in past years…Nonetheless, wirehouse advisors’ market share is dominant: Reps in this channel managed about 41% of total assets in 2011. This figure could drop to about 39% this year and 36.5% in 2013.
See. It’s already almost over. A loss of half their market share in six years. A melting iceberg, meanwhile the industry as a whole is almost back at its pre-crisis assets under management record highs.
Make them pay with the notion in the back of your head that their so-called brand is no longer a positive. The brand names of Wall Street’s largest brokerages (and what they supposedly stand for) are now neutral-to-negative in the eyes of the public. They did it to themselves, trashing century-old reputations slowly over the years and then all at once. You are the brand your clients care about. Don’t ever lose sight of that. The parent company changes its name or merges or spins-off or acquires but you are the face and the voice and the constancy that the client expects. The client cares much less about what your firm calls itself than you think.
Make them pay because the clients will never forget that when it really counted, these firms turned out to be a three ring circus of risk and not the fortress of mighty trees and majestic whales that their brochures are meant to evoke. Merrill Lynch lost $20 billion of its own money during one 12 month stretch during the credit crisis, in the year ended July 2008 it was losing a staggering $52 million per day. There are very few clients in your book who feel any loyalty or affinity to a place like that, no matter who’s taken the reins of the firm since then.
Make them pay knowing that, post-Facebook, the reality is that your clients have no interest in IPO access or banking schlock of any kind. What your clients already secretly suspected – that any “hot” product they had access to was probably poisonous – has now been reaffirmed. Your wirehouse’s entire banking and underwriting schtick has just been sodomized and lit on fire for a generation to gawk at, pitching it to a retail client will yield approximately zero dollars in new AUM.
Make them pay because you are over-burdened by needlessly draconian internal rules and regs to account for the “one bad apple spoils the bunch” mentality of your firm’s management. There are probably a handful of bad apples in your 10,000-strong national sales force. Unfortunately, the preventative medicine being applied by your risk-averse firm means that everyone gets treated like a rotten child who’s about to do harm at any moment. They’re playing Moneyball and you are just a stat, your years of clean business and dependability have earned you no benefit of the doubt or leniency from the hypochondriac compliance regime in force. And it will get worse, not better, as business conditions worsen and assets continues to flow out. Suspicion and scapegoating will become ubiquitous.
Make them pay under the realization that the people you answer to, the branch manager and the regional branch manager and so on, have no loyalty to you when push comes to shove. Their checks are signed by the home office and it is toward the home office that they face five times a day when lowering their heads in a submissive prayer. You will be passed over or fired at the drop of a hat should the home office will it. That smiling asshole whose shelves are lined with Zig Ziglar motivational books will be the one to do it. He may or may not even bother putting leaving the putter in his office when it goes down. Your email account will be turned off before he’s worked up the balls to level with you.
And so I say Make Them Pay. Big bucks, the money that you are worthy of and deserve. To hell with the home office and the public company’s grasping shareholders – get what’s coming to you and make that firm show you why you should keep your clients and your business in-house. You owe it to the clients to make the right choice. And if the right choice is to remain at a wirehouse, make sure that wirehouse shows you the respect and gratitude you deserve for having chosen them.
Because in today’s era of technology and infinite choice, it is the wirehouse who needs you and not vice versa. If not for inertia and nine year contracts, why, they’d have almost nothing left at all.
You’re worth it, make them pay.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.