Why Do Brokers Move

Brokers, better known as Investment Advisors today (or derivatives thereof) cite reasons for change that are as wide and varied as the people who ply their trade in the securities industry. But for the sake of brevity let’s take a look into the real life of today’s IA’s and focus upon some key and relevant reasons why they move.

While there are always good times and bad times in our business the “times” are not always relative to each generation of change. We don’t always see the scope and long term effects of airplanes running into buildings in New York City or American banks risking financial havoc by issuing worthless real estate products to their investors. The market somehow always seems to recover lost points but, the broker’s business does not always follow suit. The building of an IA’s business (read A.U.M.) is simple in terms of it’s objective but not easy in reality and just that more difficult for the up and coming generation.

So, consider these “push” factors, both classic and current, in no particular order:

1) The raising of the production/asset bar at major firms has always been a “moving” factor but, over the past few years the performance criteria for keeping your seat has become much more aggressive in nature. The cut line currently sits at about $400K in production on about $50 million in assets and it only has one way to go; advisors are very cognizant of this reality and the choices they will be faced with as the unwelcome mat nears their door.

2) Somewhat dove-tailing into the expectations associated with production/assets is the question of retirement. The broker population in Canada is aging and the vast majority of advisors have done nothing to prepare for their exit. The dealers, on the other hand, have made provisions for that event and the terms for passing the book are very restrictive- often not in the advisor’s favor. After all, the assets belong to the house, remember? Enter the “double dip” theory which allows the soon-to-retire broker to join a competitor for a specifically designed incentive package and then pick up the additional compensation when the book is sold internally.

Of course this movement can work conversely when an advisor moves to another firm to buy the book of a retiring broker. Simply said, the book buy/book sell factor has and is becoming a major factor for both the broker who’s heading for the gate and the new and mid-life brokers who are looking to accumulate assets quickly.

3) If production and asset targets don’t prompt an advisor to look for friendlier environs then the reality of poverty payouts will certainly light the fire. While a production grid which incorporates a ticket-size feature continues to be a governing factor in pay-out it is really the production number which will be inevitably be the standard. A production level of $300K annually at a major firm will rest pretty well on a 20% + payout and in the days ahead a $400K producer can expect the same. It doesn’t seem that long ago that production of $400K got an IA on a President’s Club trip; today the only trip available is on a down elevator. Even a $500K producer with an average $250.00 ticket size will only receive a 42% ish payout. And finally, the fee-based account business which for years was encouraged and rewarded by the dealers will invariably fall under the reality of production – directed payout.

4) While, not taking into consideration all aspects of how to build or re-build a profitable business there are a growing number of advisors today who will consider moving to the Principal/ Agent side of the market. There are a small number of reputable firms out there who offer a full service platform with a lucrative payout program for those advisors who can run their own business & control their own expenses without having to have an employer turn on the office lights for them in the morning. It’s not the life for everyone, but the trend is slowly growing in this country and we invariably will see movement in this direction.

5) Rising production and asset levels, changing payout structures and retirement planning are all factors in play when evaluating reasons as to why brokers move. But, they are far from all of the considerations that go into the decision-making process. Here are some others:

A) We spend a healthy percentage of our waking hours at the office and therefore work environment is not a small consideration to take into account. The measure of a “happy camper” environment is controlled largely by the branch manager and his/her staff. The existence of clique mentality, inequitable managerial decisions, the preponderance of the prima donna complex all fall squarely at the door of the corner office. When the environment becomes poisoned, the assets head for the exit.

B) Profitability in a brokerage firm ranks as number two behind the protection of the firm’s capital. Unfortunately, it is rare at the senior management level to see the forest for the trees. Changing outmoded support systems, nickel and diming on compensation schedules, altering the sales aide ratio on an ad hoc basis and passing along the forever increasing regulatory costs will invariably affect the advisor’s paycheque. Getting ahead of these cost issues on the part of management and at least explaining the rationale behind the changes could (hopefully) garner some understanding from an increasingly frustrated sales force.

C) A firm without a well-fashioned vision as to the values it holds and lacking a path to the future is a firm that is bereft of leadership. Senior management should never delude themselves into believing that investment advisors in the trenches don’t put much stock into the reputation and standing of the firm they work with. A broker lives and dies by his/her reputation and relationships they bring to the client table. The respect an advisor bestows upon the firm will depend on the standing and stability of the firm within the community. If the vision for all is not there the broker’s respect will be bestowed elsewhere. Without a doubt the reasons brokers move (and they do) are many; most importantly for the advisor and his/her clients is that the reasons be well founded, carefully considered and the net benefits outweigh the inconvenience and trauma of the move. Yes, the times change within each generation but, some of the key fundamentals of disengagement remain constant. In upcoming pieces I’ll examine other aspects of career planning and life in the investment/financial industry as learned and experienced in my forty plus years on the front lines.