We’re Heading to a Salaried Broker Model, and We’re Broken-Hearted

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With the benefit of hindsight, the reasons behind Morgan Stanley and UBS’s exits from the Protocol for Broker Recruiting (Prexit) were staring us all in the face.

The muddle that is the DOL fiduciary standard foreshadowed it all. Firms used the proposed edicts in that nebulous political football as a shield to make long-sought policy changes that bolstered their managed-account-driven bottom line, while depriving brokers of the investment management functions that brought so many of them to the industry in the first place.

It was a short profit step from bulking up their fee-collecting machines through the allegedly progressive fiduciary rule to Prexit.

Handcuffing the brokers and clients who generate the fees was a natural turn once the big firms decided to radically cut their recruiting budgets. Just take a look at how quickly their legal vultures ginned up non-solicit agreements and rushed to court for temporary restraining orders once they were out of the agreement.

The basic question at the heart of all of the turmoil is as old as the business itself: Who owns the client?

Some firms such as Stifel, Raymond James and many among the Independent diaspora are in the camp that says advisors own their books of business. Morgan Stanley, UBS and other firms that are leaving the Protocol, obviously, have a different view.

I’m being admittedly reductionist about these two camps, but that’s the essence of the problem. (Merrill Lynch and Wells Fargo remain in the Protocol, but most strategists I know believe their commitment is a short-term one.)

I believe that the push to lock advisors and their books in place through a series of known and obfuscated legal memoranda and policy shifts is purposeful, and full of grim portent for entrepreneurs. It is also, sad to say, the logical extension of the Prexit gamble.

As our business ages, firms are relying on young teammates. They get cursory training and are attached to large teams. The obvious goal: To set them up to inherit clients from senior advisors retiring over time through “sunset” agreements rather than let those advisors and their clients high-tail out in their waning years of production to rivals.

The calculus for future payouts changes for everyone, including other brokers still in their productive years.

Onerous legal language binds the teammates and senior broker to the firm because of real concerns about their ability to move their books.

It would be alright, if all parties understood the terms, but firms are not very transparent about their motives. The motivating belief is that brokers are there to service clients at the firms’ behest. It’s not a terrible business model, but it’s not traditional brokerage. It’s a European model, more salary-and-bonus than the hunter-gatherer model that whetted many of our commission-hungry appetites and service models. All of this may very well add up to good business for firms and their shareholders, but it signals the end of the entrepreneur/advisor at many firms.

If we have reached the point where client phone numbers in the cell phone of every advisor are now somehow trade secrets, as some firms have claimed in their restraining order filings, we have already crossed the line toward the European model. (And how the phone number of a golf buddy can be construed as belonging to the firm stretches reasoning.)

There can be no salary based, client-owned-by-the firm European model without the non-solicit. Non-solicitations strangle what remains of advisor independence.

But firms aren’t stupid. Like all Orwellian strategists, they are doing their damage subtly: A line or two is slipped into your contracts; a new codicil is presented for you to sign if you want to receive a bonus you’ve already earned; an employee memo has buried within it something about a changed policy. Then come the public legal battles aimed at destroying the livelihoods of those who don’t tow the line to deter others from following their examples.

Firms may protest that they have advisors’ best interests at heart, but the adage still holds: Don’t listen to what they say, watch what they do.


Tony Sirianni is publisher and chief executive of AdvisorHub.

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Comments (8)
  • An apt analysis, and the events surrounding Prexit are clearly a harbinger of less prosperity for advisors in employee-based models. Even a blind man can see the writing on the wall here.

  • Wow sad but true

  • Mounting tanks on the border may hint at invasion but it is as much a desperate act of intimidating defense born of terror. The strategists at MS and UBS have already blown the call and they know it. Morgan is retraining BMs to recruit in a post Prexit environment and have rolled out a comprehensive recruiting package. We know UBS is more subtly doing the same thing. Both firms know crossing the border to a salary bonus model is a war they cannot win! The regional and independent firms, IBD and RIA will crush them with minimal armament. Not the first time we have heard the Salary-Bonus doomsday prediction. No doubts the 0 for 100 record will remain perfect.

  • This line of thinking has been around for years and will continue to be around for years to come. If the four wires want to head down the path of paying a salary and bonus instead of commissions and fees, they do so at their own peril. Just when you think they can’t screw up their firms any more…You have to be dumb, purposefully ignorant or both to be one of the 60,000 advisors at the four wirehouse firms and to still believe that your firm actually gives a crap about your clients, and to an even lesser extent, you. It boggles my mind that producers at the wirehouses don’t leave. I have yet to meet an independent advisor that said “Man, I wish I would have stayed an employee”.

  • Salaried FA’s destroy the incentive to grow your business. MS and Gorman would love this model as Gorman is a clueless bean counter. The only guy who says Wall Street is overpaid but keeps getting bigger payouts, funny he never refuses them. He has created such bad moral that FA’s can’t wait to leave. Many deals are up at the end of 2018 so you will see a mass exodus. You will see the secondary dealers doing much better.

  • The wire houses became banks, the banks were always jealous of the productivity of the wire houses brokers, the wire houses were always jealous of the bankers lack of pay, so here we are today. The wire houses thought they could use the fiduciary rule to force all assets to pay a fee. FINRA will have a field day with this as the firms abused this. The wire houses are run by the likes of Gorman types that are only in it for themselves. The industry is changing and the big firms don’t get it. 30 page compensation rules are just one example. The are focused on short term greedy, which never works for any industry. It is a sad fact that an IBKR gets it yet the wire houses do not. Maybe they can change the name of a broker again and pay another consultant for another poorly rolled out “new” idea.

    • Unforetunatley, FINRA helps the brokerages. FINRA isn’t really in the business to provide “investor protection”. They are in business to help their *member* brokerages who find FINRA. Make no mistake, they cuddle up under the blankets and play twinkle toes.

  • The larger point here is that we are already on a virtual salary as we are locked in and get paid less to service retiring accounts—the effect is the same–we are being salaried bit by bit the firm owning the client bit by bit restricted in movement bit by bit

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