put a lid on it

Wall Street’s Put

For the last ten years there has been a superwar raging for Financial Advisors. Especially the last five. And your broker is a mercenary, going to the highest bidder.

Your broker’s big payday? It’s based on how much of your money is moved to the new firm & how much in fees your money will generate. You’re not really surprised, are you?

Let’s start the bidding, shall we…

Do I hear payouts at 150% revenue? 200%? 5 year contract? 7 year contract? Do I hear 300%, for a 10 year contract?

Sold American.

Yep. Your broker is brokering you & your money. And you remember the pitch, right?

“Come with me– this new place is awesome…WAY better”

Or was it “this new place is pretty much the same but I’ll get a humungous check to make the move.”

My manager was the first one to break it down for me. “You’re going to take a check one or two times in your career, so be smart about the timing.” Whenever someone left though, it was like Jerry Maguire on the phones– kill or be killed. He wanted blood. He wanted the money to stay. His annual bonus depended on it.

My manager took his check in 2005, in the wake of the IPO mess of 2000 that was still stirring in everyone’s portfolio. Most of the office was washed out from it. Brokers were worried. They all looked like assholes. My manager knew it.

That “Lipstick On A Pig” ad from Schwab hurt.

It might be one thing when Goldman shills IPOs in the 20’s to the unsophisticated masses, but do it again in 2000. Say it ain’t so. And this time– all of the firms were in on it. It was toxic.

The veterans in our office & my manager said the same thing, “best time to build a business” and “it will blow over…” And they were right.

But starting around 2007, the firms started realizing a few things: 1) The internet is changing everything 2) Brokers are tired of apologizing for their firms’ transgressions 3) Clients are getting smarter about the game.

So they started buying the loyalty of financial advisors, paying exorbitant prices. Those big 10 year deals for your broker? That’s Wall Street’s insurance policy from you leaving them. They’re buying time until they can figure out the next move, the next chapter.

It’s Wall Street’s put.

Relevant:

Morgan Stanley Smith Barney Gives Retention Pay – WSJ (Jan 2010)

Will the SEC Curtail Recruiting Bonuses? – Registered Rep (Jan 2011)

Krawcheck Said to Exempt Merrill Brokers From ‘Garden Leave’ – BusinessWeek (March 2011)

Back in the Game – Bank Investment Consultant (April 2011)