Op-Ed: End of Bull Market Reveals Bereft Management Policies
Rising markets make all financial executives, not just portfolio managers, look good. A falling one can be very telling in terms of policy effectiveness.
What’s prompting this observation is the crass or, at best, ham-handed, approach that many large firms have been taking toward nurturing and compensating their advisors as the nine-and-a-half year bull market comes to an end.
As markets steadily rose, assets and revenue grew along with them. Executives gave lip service to the value of their brokerage force’s client relationship skills but independent minded advisors are not easily pigeon holed and recruiting is expensive. Collecting ever-growing asset-based fees was much more efficient than recruiting new advisors.
As a result, brokers for almost a decade have been treated with benign neglect.
The Protocol for Broker Recruiting was created to save on legal bills before the financial crisis, and post-Crisis it served as a safety valve. Firms could afford to see a few ambitious or angry pros pack up and leave since losing them was not even a rounding error when the S&P was burying all strategic mistakes.
But the good times always stop rolling. As firm strategists began planning for the decline, retention of brokers and their assets began reasserting itself as a core business value. Rather than taking the “attract bees with honey” approach that firms and managers used to win points with brokers, however, firm executives clenched their teeth, girded their grids and lawyered up.
Many of the establishment players also failed to acknowledge the juggernaut that independent brokerage and advisory firms had become, and the flexibility that some regional firms were exhibiting even as their big brethren were tightening up.
Suddenly, policies designed to clip advisors’ wings came into vogue. Morgan Stanley and UBS opted out of the Protocol (what I call their “Prexit” moment) and revived the overnight filings of temporary restraining orders when brokers flew the coop. Merrill Lynch designed compensation policies that reward healthy increases in new accounts and assets but impose penalties on even the most experienced brokers who fail to meet growth quotas.
Let’s be honest. TROs and punitive pay policies are a declining-market bell cow. They speak to the fear, and, ultimately, desperation, that firm executives feel as markets decline. Using heavy-handed methods to mold any kind of behavior doesn’t work in child-rearing, education or for staunching asset outflows.
Firms also are robbing many advisors of the dignity they enjoyed with their customers as counselors, stock pickers and, yes, as financial planners before that term became popular. The handcuffs today for brokers are not just legal, they are functional. Leave the portfolios to us, firms are saying, use artificial intelligence to keep your communications with customers on a constantly flowing level and spend your time, please, generating new accounts.
Once advisors become sales automatons, there’s no need for entrepreneurial commission-based advisors. And now that rising markets aren’t doing the revenue trick for executives, they can return to their long-cherished dreams of creating salaried employees servicing clients that the firms “own.” Hello to the European model.
As I have preached earlier on this site, none of this is good for advisors or clients. Locking in advisors and clients stifles innovation. No industry can prosper without motivating positive feelings about their employees’ self-worth and accepting and adapting to change.
Retaliatory corporate behavior to compensate for market declines is like closing the barn door after the horses have run away. Litigation is an easy but ineffective answer. Investing in people-centered managers, advanced practice-management tools and skills-enhancing technology is a better solution than short-term scare tactics.
What ever happened to making your firm such a great place to work that no one would want to leave?
—Tony Sirianni is publisher and chief executive of AdvisorHub.