Why top producers stay at wirehouses

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Jul 27, 2007 3:13 pm

Despite the trend of top-producing reps going independent, it is pretty much a known fact that most top-producing reps are still at the wirehouse firms, why? What do you think keeps them at the wirehouses? Why aren't more of those top-producing reps going independent?

Jul 27, 2007 3:22 pm

They have made a comfortable lifestyle for themselves and don't have the desire to create headaches for themselves by running their own shop.  They make a decent grid compared to their lesser producing counterparts and are first in line to swoop up any accounts from the departing/fired/whathaveyou brokers.  Some of the biggest that I know are able to take the entire summer off.  They don't have to deal with a copy machine not working or a raise in rents at the good ol' indy office.  It's all taken care of for them.  There has to be a desire for a different lifestyle, desire to "own" a business, and/or a desire to make more money for them to leave.  In one word:  Complacency.

Jul 27, 2007 3:32 pm

Yes, safety (both for reps and their clients) definitely seems to be one of the largest reasons top-producers stay. Do you work at a wirehouse?

Jul 27, 2007 3:39 pm

From my experience, the first issue is age of the producer.


If you are taking about a big producer that has been in the wirehouse 20-30 years or more, you're talking about a guy who is fairly comfortable. It's sort of like the idea that at a certain age, the client is more worried about return of principal and less about return on principal.


The big producer sees his overall benefit package being somewhere in the 55-60% range and so, to look at doing all the work of Indy for an extra 10-20 percent (not to mention the idea of slippage of accounts, there are many older reps that have clients that creat his bread and butter that are people that have just been paying trails for years. They're folks that have been "b" and "c" books for decades, old guy producer will lose some alot of those. And that doesn't help the economics of the deal.


The younger big producer wants the big check, and figures that next time, he'll do the indy thing (of course, next time hasn't arrived yet because of the longer lockups that the big check switch means). For a significant number, I bet they'll never indy themself because the next time will be big check to pay for the big divorce and the trophy wife, maybe next time.


This is where I see WS having the biggest impact on the industry, their PF platform, which will cu the advantage of the Indy model to next to nothing for the big producer. Heck, if they can get a 90% payout and stay inside the branch, WTHell, they'd have to be crazy to leave... They'd have to be crazy to stay at a firm that didn't have a similar program for them.


There's the paradigm shift that we indies have forced the industry to take. 

Jul 27, 2007 4:14 pm
staffwriter2:

Despite the trend of top-producing reps going independent, it is pretty much a known fact that most top-producing reps are still at the wirehouse firms, why? What do you think keeps them at the wirehouses? Why aren't more of those top-producing reps going independent?



Who are you and who do you write for? Are you lonesome or are you writing an article? If you're writing an article, why wouldn't you be upfront with us?

Jul 27, 2007 4:28 pm
staffwriter2:

Despite the trend of top-producing reps going independent, it is pretty much a known fact that most top-producing reps are still at the wirehouse firms, why? What do you think keeps them at the wirehouses? Why aren't more of those top-producing reps going independent?



Whom's largely right, imho. They're comfortable, they have bucket loads of money and stock in deferred bennies that would be lost, and they know that after rent on the kind of office space they’re used to, technology, support staff, increased pricing on medical and life, loss of the ability to buy the firm’s stock at a large discount, all the other perks of being a big producer, etc., they’re picking up 10% or so more in income for a myriad of headaches they don’t face now. It just isn’t worth it. Moreover, and with no offense meant to anyone, the indy channel doesn’t rate great respect in many corners of the business.<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Jul 27, 2007 4:32 pm

I am a staff writer for RR, I thought my username would give that away. Why do you think top-producers stay at wirehouses?

Jul 27, 2007 4:40 pm

Anyone can create a username like staffwriter2.  Can you please identify yourself?

Jul 27, 2007 6:05 pm

If you're really a staff writer for RR, hire a moderator for this board.

Jul 27, 2007 7:08 pm

Just ignore ChrisB, he's the forum wet blanket.

Jul 27, 2007 9:25 pm

I would have to disagree with your assumption. I think that you're failing to consider all of the advisors that become RIAs, not indy brokers.


While the average production is generally higher at the wirehouses than the independent broker-dealers, the top producers in the industry overall, would be at independent RIA firms. (At least in my area.)


My experience is that (at least in California), it is far more prestigious to be a partner with a smaller firm than an employee of a massive one, as the assumption is that you're building equity, as opposed to working for a paycheck. This is anecodotal, admittedly - but from what I can gather, the majority of the assets from the Google IPO went to boutique firms - not the wirehouses or i banks.


At my wirehouse, the largest producers' assets aren't even close to what is held at the larger one or two partner firms. They simply don't seem to play on the same field. Their offices are nicer, they seem to have superior administrative support and they seem to be generally better credentialed (although that seems to be changing). From what I can gather, being an RIA is a great life. They also have a great deal less compliance than a brokerage firm does and are fought over by brokers seeking out their business.


You really need to be a managed money or wrap guy to make the change over to being an RIA after being a wirehouse broker. I think that most major producers at wirehouses ($2.5 million and above) are generally more brokers than financial advisors. They seem to engage in business that is based off one or two products or activities (lending, insurance, institutional, one fund company, munis, whatever) that are based on sales commissions. Accordingly, the move to anything other than another wire or independent b/d would equate to a massive change in their business plan. That just doesn't make sense if you're making $500k+ a year and working 30 hours a week. 


You don't get as much freedom to market and say whatever you want as a indy broker - not like an RIA. Before all you indy brokers start throwing rocks - I'm sure their are exceptions - but the NYSE/NASD are harsh SOBs. My guess is that most corner office brokers don't think that the somewhat increased freedom is worth not taking the check and going to another wire. I would also assume that most people who are really plain brokers are much more likely to be dependent upon their firm for access to certain types of products and resources than a guy who manages five outside managers with good performance. I think that all of the managed money guys are basically really likely to depart - they'd be who I was keeping an eye on if I was a manager.


So, what I would say is that the average "big" wire broker is proabaly much bigger than the average "big" indy producer at a b/d, but in the world of RIAs, the numbers are much bigger on average than at a wire. The big managed money guys at wires leave and start RIAs and aren't part of the "indy" world that I think you're thinking of.

Jul 27, 2007 10:06 pm
staffwriter2:

I am a staff writer for RR, I thought my username would give that away. Why do you think top-producers stay at wirehouses?


Same reason everyone else stays - they like it. You can get an article out of that?

Jul 28, 2007 12:22 am

Not sure you can generalize, but a lot stay because they're fat, happy and comfortable.  They've built their book, they have their niche, they get a lot of support, they have a team and systems that they're familiar with.  The marginal increase in payout doesn't compenstate for the stress and level of work that would be required to make a change.  Bottomline -- a lot of laziness.  They are making a lot of money now.  Why take on all the change and risk?  


It's the same reason I won't up and move to where my second home is & build a business there.  My husband and I would like to live there year-round, but I just don't want to work that hard again.  My income is just too easy right now.

Jul 28, 2007 8:40 am

san fran, I've been noticing the same thing here in Texas with regards to RIA's. 

Jul 28, 2007 12:09 pm

what i have seen is that the large producers at the wirehouses got that way by staying there and following the company line. they attack account when someone leaves, and inheriting more account becasue of this because of their loyalty. maybe that is why i am a mid tier broker but i haVE DONE OK WITHOUT SELLING OUT OR CRUSHING FREINDSHIPS AND CARREERS OF OTHERS. JUST MY OPINION

Jul 28, 2007 12:40 pm

I will also add that I think they Indy paradigm is mis-sold.


The idea of a single guy sitting in a single office with a single secretary/assistant etc makes for a bleak picture. IMnotsoHO The promise of an Indy practice is interdependency. The ideal should be building a firm and not building an office.


When the concept is sold this way, a big producer could see the advantage of leveraging his wealth and his book to create an income stream with a net payout of 100+% to the head of the company.


Getting people to see this opportunity is decidedly difficult, for sure. But as time goes on and there are success stories of this type, then there could be more to follow.


Jul 28, 2007 1:18 pm

My experience is that (at least in California), it is far more prestigious to be a partner with a smaller firm than an employee of a massive one, as the assumption is that you're building equity, as opposed to working for a paycheck. This is anecodotal, admittedly - but from what I can gather, the majority of the assets from the Google IPO went to boutique firms - not the wirehouses or i banks.


I've heard that Southern Californians generally are not too impressed with the whole wire house gig & something on the order of boutique firm is expected - I know a local RIA who is planning to expand to there from another state to take advantage of that market condition.


Nice analysis, SF.

Jul 28, 2007 1:24 pm

The idea of a single guy sitting in a single office with a single secretary/assistant etc makes for a bleak picture. IMnotsoHO The promise of an Indy practice is interdependency. The ideal should be building a firm and not building an office.


Some guys like a crowd and a suit, some are farmers and like solitude with lots of phone contact and recreation with their clients all day.


The ideal should be building a firm and not building an office.


Have you read some of the recent research about the profitability of solo practices versus ensembles firms? What goes against logic can be financially and socially rewarding.


Technology makes it possible to be highly productive and profitable in almost any scenario.


Jul 28, 2007 4:20 pm
Whomitmayconcer:

I will also add that I think they Indy paradigm is mis-sold.

The idea of a single guy sitting in a single office with a single secretary/assistant etc makes for a bleak picture. IMnotsoHO The promise of an Indy practice is interdependency. The ideal should be building a firm and not building an office.


When the concept is sold this way, a big producer could see the advantage of leveraging his wealth and his book to create an income stream with a net payout of 100+% to the head of the company.


Getting people to see this opportunity is decidedly difficult, for sure. But as time goes on and there are success stories of this type, then there could be more to follow.


Well, as we often have in the past, I'm going to have to completely disagree with you on this one.  The idea of flying solo is very appealing to me.  Granted, I wouldn't be classified as a heavy hitter, but IMnotsoHO, I doubt if I'm the only one sick of the shark tank and ready to fly solo.  Sure, I have plans to MODESTLY expand the business, probably to a maximum of four...me, licensed assistant, Jr. series 7 and receptionist.  That's the maximum number of personnel headaches I ever want to deal with and I could see some heavy hitters wanting just enough support staff they can be left alone to produce.


Your version of independence is not at all appealing to me and sounds like one personnel headache after another.  Obviously, it appeals to you and that's all that matters.  Good for you.  Your "bleak" picture of independence is my version of paradise and that's just another one of the appealing elements of going independent...you can create your ideal firm...whatever it may look like.

Jul 28, 2007 4:52 pm
Indyone:

Your "bleak" picture of independence is my version of paradise and that's just another one of the appealing elements of going independent...you can create your ideal firm...whatever it may look like.



The fact remains that you have never experienced what it would be like to work for a premier wirehouse, so you really don't know what you're missing.


Joedabrkr was a failure at PaineWebber so you're not going to get an impartial point of view from him.


Is there a guy or gal posting here who was in the upper 25% of their wirehouse firm's production who found the independent route to be more desireable?


I can ASSURE YOU that when the market makes significant corrections the clients are very likely to conclude that the reason they took a bath was because they had cast their lot with a guy who has no support system.


I don't care what you say, to a client a guy working at Merrill Lynch is a professional and a guy working out of his car, garage, shared office with a local CPA or any of the other arrangements that are not a wirehouse branch office is going to appear to be unable to compete.


Concluding that the client who is happy as a pig in slop during a bull market is going to have that sh*t eating grin on his face when his retirement is 20% less secure is foolhardy at best and fatal to a career at worst.