In this market, brokers are being laid off or are voluntarily opting out, because it's so hard to make their numbers. Yet, some brokers are still stalked like first-round NBA draft picks. Just as coaches try to create championship teams by packing the bench with the best athletes that money can buy, brokerage house management is always on the lookout for top talent for their teams. Big producers are profit centers, and “bagging an elephant” does two things for the firm: It increases revenue and profitability and — an added benefit — hurts the revenue and profitability for the competitor that lost the draftee. So, how can you get into the brokerage draft?
(Big surprise, eh?) Big numbers are the key. Nothing puts a financial advisor on the brokerage radar screens like money. There is no hard number that a broker needs to reach. Certainly the “million dollar” producer is a milestone to strive for. Having said that, a better measure of excellence is $100,000 of revenue for each year of production. For example, a broker with seven years of experience should be producing roughly $700,000 of revenue. Any firm would look seriously at a broker maintaining that level of production.
Return on Assets
Often as important as the revenue number a broker has attained are the assets he or she manages — and how much revenue those assets generate. As the saying goes, “He with the most assets wins!” The magic number in assets might well be $100 million, which ties into a very important statistic, R.O.A. (Return on Assets). R.O.A. is the broker's gross production divided by his assets under management. It is the best measure of a broker's day-to-day business. An ROA of 0.75 percent or lower implies that the broker might not be actively managing the assets he oversees. He might be an older broker who only goes to the office occasionally, he might be a broker with a large percentage of the assets on the sideline, (money market, short term bonds) waiting for the market to turn. A low R.O.A., if well explained, does not effect a broker's draft status — especially if his assets are large.
On the other hand, a high R.O.A., 1.50 percent or above, is a big warning sign. It implies that the broker is churning his book — buying and selling stocks, bonds, and mutual funds, with the goal of generating revenue as opposed to helping the client build/maintain wealth.
Have the right business model
In these extremely trying times it is certainly not good enough to just produce big numbers. It is equally important to have a practice that is fee-based (i.e. annuitized), strong and movable. Advisors who have a strong network or other advantages (a wealthy family, board memberships, etc.,) are more desirable because they are more likely to be keep the bulk of their assets and maintain their productivity. Remember, no firm wants to focus on what you have done; what concerns them is what you will be able to do. Being a center of influence, and working with like-minded people helps insure that an advisor will be able to maintain and grow his business.
So much easier said than done. To be a top pick, a clean U-4 is a must. Many firms, perhaps all, will not give their best deal and sometimes no deal at all, if the broker has a “significant mark.” A client complaint is not considered significant. A settlement with damages paid is. Many firms don't care how small the damages are; if dollars were paid out, the broker is seen as a risk. Liability is a huge issue, bigger than ever. Much like a great athlete with a previous injury, a broker with complaints/arbitrations/settlements is deemed a risk and therefore seen as a less-than-stellar investment.
Nicholas Ferber is the managing partner of the banking and brokerage business of executive recruiters SolomonEdwardsGroup. [email protected]