For the second year in a row, registered reps saw double-digit declines in gross income, according to the Securities Industry Association's most recent survey of earnings and production.
Average gross commissions and fees in 2002 dropped to $357,890 from $400,538, a 10.6 percent decrease. Average net earnings — take-home pay — fell 8.3 percent to $150,828 in 2002 from $164,393 in 2001.
“It was a difficult year for investors and registered representatives alike,” said Steve Carlson, SIA vice president and director of surveys. “While the drops in income were not as steep as the year before, the bear market's impact was still felt.”
Life has been particularly difficult for mid-level brokers. According to the report, 20.8 percent of registered reps were separated from their firms in 2002. Of that group, 27 percent joined competitors' firms, and 73 percent either quit the profession or were dismissed for low production.
Mark Elzweig, a New York-based recruiter, says the news comes as little surprise to him. “A lot of small producers, those up to $300,000 [in production], have left already,” he says.
One reason for this is that wirehouses seem less interested in carrying lower-producing reps. To wit, most have implemented more stringent production guidelines. For example, bonuses for producers staying on through the Prudential-Wachovia merger were virtually nil for those with less than $250,000 in annual production. In addition, Raymond James Financial recently instituted a $150,000 annual production requirement on its independent reps.
Despite the difficult business climate, though, top producers might actually feel as though these are positive times, given the way wirehouses continue to recruit them. “Even though earnings are down and firms have less money to spend, they're going after bigger producers,” says Elzweig.
Unsurprisingly, reps with seniority tend to have the largest rosters of clients and are most likely to remain with their current firms. However, recruiters say, many wirehouses are showing a willingness to come up with inertia-breaking offers for the right people. For instance, some reps (those with large pools of assets) are drawing offers that pay as much as 100 percent up front. In most cases, these deals are structured with a deferred component that rewards brokers who increase their production in the first few years at the firm.
UBS kicked off the year with this type of offering, and quite a number of firms have since followed its spirit.
“More and more firms are competing for a relatively finite pool of big producers, and that's what the next few years will be about,” Elzweig says.
Top 10 brokerage firms, by number of locations
Edward Jones, with its focus on one-man offices, easily outpaces the competition.
|Firm||Number of offices|
|Banc One Securities||1,795|
|Wells Fargo Investments||1,061|
|AmSouth Investment Svcs.||585|
|Citigroup Global Markets||580|
|Citicorp Investment Svcs.||554|
|Source: Securities Industry Association, 2003-2004 Yearbook|