report-card

2011 Broker Report Card: about that…

For the last two decades Registered Rep, one of Wall Street’s largest trade publications, has polled the opinions of Financial Advisors (FAs) about their respective firms. The survey then combines all of the opinions with the actual financial metrics of the firms’ salesforces (note: I said salesforce), looking at average assets under management and production (commissions & fees generated) per FA.

This year over 22,000 online surveys were sent out, with over 1700 responses completed from the following firms: Edward Jones, Merrill Lynch, Morgan Stanley Smith Barney, Raymond James & Associates, UBS Financial Services and Wells Fargo.

So, what’s happening under the hood of Wall Street? This annual report card, compiled by Kristen French, offers one of the most telling & comprehensive snapshots you’ll find anywhere. For industry watchers like me, it is the go-to source. And here’s some of the highlights…

On Going Independent:

About 31 percent of Morgan (Stanley Smith Barney) FAs, 23 percent of Merrill FAs and 13 percent of UBS respondents said they had considered going independent. Meanwhile, a full 41 percent of Wells respondents said they had considered independence…

So, for not-a-small-number of clients, expect a Friday phone call in the next year or so from your broker telling you they made the jump. The brokerage firms can’t be happy about the numbers they are seeing, especially when we are talking about trillions of dollars on the line.

For some color on what this trend means for the industry and you, the client, Josh Brown, has a fantastic piece up over at the WSJ on the Business Model Darwinism taking place in our industry. In it, he shines the flashlight on the difference between using an independent investment adviser vs. the neighborhood broker you’ll find at most of the major Wall Street firms, namely fiduciary responsibility.

See, as it is in the Wall Street firms, brokers love to silo their relationship with you, maximizing their chance to raise that average production level of their salesforce. I’ve also dedicated some typing to the topic as well (see: Advisor or Adviser?).

On Moving Firms:

And yet, to consider independence does not necessarily indicate a commitment to making a move: 93 percent of respondents said they are very or somewhat likely to be with their firm in two years, up from 89 percent last year.

From this number you’d be forgiven to think it’s because many advisors are happy about things. The trend though, for the last 6 years or so, is for firms to pay huge bonuses for brokers to join their firm (& bring client assets) locking advisors into 7-10 year deals with the new firm. Knowing this, I think, many of the advisors polled have probably already made the jump and are now stuck. (Expect the first wave of this trend to unwind in about 5 more years)

For more on the topic of brokers moving firms, here’s some weekend reading: Wall Street: F#%k You, Pay Me / Fridays / and some highlights from an interview I gave Registered Rep about the trend of brokers going independent.

About That “World-Class” Research:

On a scale of 1-10 (10 being super duper awesome), how do the financial advisors rank their firms research?

Average Rating Edward Jones Merrill Lynch (Bank of America) Morgan Stanley (Smith Barney) Raymond James & Associates UBS Financial Services Wells Fargo Advisors
Quality of investment research 8.1 8.7 8.2 7.2 9.3 8.3 6.7

Overall, Wall Street advisors give themselves a ‘B’ and the worst score, from Wells Fargo, was a ‘D’. Yet every year ALL of these firms love to espose their access to ‘world-class research’ for retail clients.

The truth is, though, most of the research being disseminated by these firms isn’t really for retail clients. Most of the ‘quality’ research is for institutional clients, with the firm hoping it creates action (and commissions) in their accounts. Of course, you, the retail client, are affected by association– most of those institutional clients are probably one of your ‘unbiased’ third party private money managers or mutual funds being sold to you.

For more on the topic of research, you really need to read The Interloper’s piece: Sell Side Over-Optimism Explained As The Trend Fades.

The Numbers from the Top 4 firms:

Avg. Production Avg. Assets Under Management
Overall average for group: $749,113 $95.30
Switching Avg. Production Avg. AUM
Somewhat or very unlikely to be at current firm in 2 years $664,286 $89.60
Somewhat or very likely to be at current firm in 2 years $761,612 $96.10
Going Indie Avg. Production Avg. AUM
Have considered independence $741,138 $98.50
Have not considered independence $756,219 $93.90
Favorite Channel Avg. Production Avg. AUM
Fee-only RIA or Hybrid RIA is the best channel $771,875 $101.40
Wirehouse is the best channel $762,321 $93.70
Regional is the best channel $706,707 $98.30
Independent B/D is the best channel $764,407 $98.00

You’ll notice some trends in this data: 1) The smaller brokers are the ones probably leaving the leviathan in the next two years 2) larger brokers are the ones considering making the change.

So, the firms are either too big to give enough love to the smaller brokers and the bigger brokers are getting big enough to consider moving out on their own… either way, this isn’t a great trend for the firms.

About compensation — before you work yourself up in a tizzy about how much your broker is making — You need to know how the payout works for the average production number you are seeing. The firm keeps about 55-60% of that number. If a broker’s production numbers are lower, the firm’s take can be as much at 65-70%.

Overall:

Average Edward Jones Merrill Lynch (Bank of America) Morgan Stanley Smith Barney Raymond James & Associates UBS Financial Services Wells Fargo Advisors
7.6 9.1 7.2 5.7 9.3 7.7 6.4

Overall the industry brokers gave themselves a ‘C’… Average. One of the standouts, Edward Jones, has a tendency to slather their salesforce with trips and other perks so, I think, we can see why they think so highly of themselves…

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I’ve left out a ton from the findings. For the full break down & takedown of each of the individual firms, you’ve got to get over to Registered Rep & read the rest of Kristen’s insightful work.

Read More:

2011 Broker Report Card: Registered Rep