WealthManagement Magazine

It's the Broker, Not the Brokerage, Stupid

At the industry pooh-bahs' annual bash in Boca Raton, Fla., Nov. 5-8, the Securities Industry Association (SIA) released results of its yearly investor survey. One item of note: Two-thirds of investors who use a broker said their primary relationship is with the individual broker, not the firm.The survey is part of the SIA's ongoing Trust and Confidence initiative, a series of projects with which

At the industry pooh-bahs' annual bash in Boca Raton, Fla., Nov. 5-8, the Securities Industry Association (SIA) released results of its yearly investor survey. One item of note: Two-thirds of investors who use a broker said their primary relationship is with the individual broker, not the firm.

The survey is part of the SIA's ongoing Trust and Confidence initiative, a series of projects with which the SIA hopes to improve the industry's overall image with the public.

As in the past, the SIA investor survey found that investors give their brokers high marks. Sixty-one percent were "very satisfied" with the service they receive, for example.

It's not surprising then, that 65% of investors said their primary relationship is with their individual broker.

But SIA leaders confirmed during a press conference at the meeting that they have no plans to address the industry's use of non-compete contracts with reps, which would appear to run counter to investors' opinions as to the nature of their brokerage relationship.

"There's no activity on the SIA's part to eliminate non-competes" said Jim Higgins, president and COO at Dean Witter and outgoing SIA chairman. "We don't view it as being on the radar screen." Higgins added that other industries also use non-compete agreements with employees.

In lawsuits against defecting brokers, firms sometimes enforce non-competes that prevent reps from contacting customers. Among other things, firms claim customer accounts are "trade secrets."

In fact, in one recent case, Dean Witter used a non-compete clause in its training agreement in arguing that it didn't have to process 42 ACATs forms signed by customers of a departing rep. A Cook County, Ill., judge rejected that argument (see "Indentured Servitude," November '97, RR, Page 90).

Despite efforts by firms to tie clients into the house, investors seem to be going in the opposite direction. The latest survey results show that a growing percentage of investors feel more loyalty to their broker versus their firm (see chart, Page 54).

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