Smaller financial advisors — those generating less than half a million in annual production — are feeling battered and neglected in today's environment. And these advisors account for almost two thirds of registered representatives affiliated with full service brokerage firms, according to compensation consultant Andrew Tasnady, of Tasnady & Associates. Their payouts are being cut, many are in the “penalty box,” they didn't get retention packages if their firms were sold to another bank, they fear for their jobs and, in some cases, they are being forced to give up smaller accounts (under $50,000), which often comprise the bulk of their businesses.
In September, for example, UBS laid off 180 rookie and lower producing advisors, on top of the 8,700 employees it had already axed in 2009. Earlier this year, Merrill Lynch revised its compensation grid, cutting payout to 35 percent for advisors generating between $300,000 and $399,999 in annual revenue who had been at the firm for 10 or more years. For brokers generating less, the payout dropped even more precipitously — to as little as 20 percent. Compare that to a 47 percent payout for advisors in the first quintile.
Times are tough, and many of these smaller advisors find themselves working a lot harder and making a lot less. Take Josh, who has worked as a wirehouse advisor in Philadelphia for the past 9 years. This year he will generate $285,000 in annual revenue on $30 million under management.
“I was earning around $110,000 earlier this year before my firm slashed my payout. My gross now is just over $70,000!” says Josh. “Before last October, I was producing more than $430,000 and earning almost $165,000. Not only did I not get any retention money when my firm was sold, but I can barely pay my bills today.” On top of this, he just learned that his firm is making him pay for his own health insurance. Each day he goes to work, he is “waiting for the next shoe to drop,” he says.
Josh is not alone in his frustration. At many of the larger firms, attention is focused solely on helping the most profitable advisors generate more business. The advisors at the lower end of the spectrum live in constant fear of being axed and fight for the scraps thrown to them by management. In many cases, they must share an assistant among several other FAs, do not receive any marketing funds and are discouraged from prospecting for clients who would be in their sweet spot — individuals with assets of between $50,000 to $100,000.
So, why do they stay put? For many, it is simply a case of inertia. They fantasize that life will get better. And, because advisors at this level have relatively small asset bases, they are petrified that the loss of even one client will devastate them. How can they move and take that risk?
But there are plenty of good options for financial advisors generating over $350,000. A number of regional firms are looking for such advisors and will even offer transition money (up to 100 percent of production). If the advisor is able to raise his production and asset levels at the new firm, there are “back end” bonus incentives, too. Another option is to partner with a senior advisor at their current firms, or at a new firm, as a means of getting on the inside track for purchasing or inheriting a larger book of business down the road.
And then there is the option of going independent, with the higher payout, open architecture and full autonomy that entails. For the more risk adverse, there is also the possibility of plugging into an existing RIA or independent firm, thus enabling the advisor to focus on production and off loading the hassles of running a business.
Dennis, a Merrill Lynch advisor with 20 years at the firm and annual revenue of around $380,000, recently decided to take that route. Dennis didn't receive any retention money after the Bank of America purchase, he now has to share an assistant with 3 other advisors and he lost all of his travel and entertainment budget. In the meantime, he has struggled with Merrill management over approval of a column he'd like to write, and cannot publish his performance results. While he is petrified about making such a big change, he has made up his mind to join an existing RIA, which will allow him to do both without hassle.
founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting. www.diamondrecruiter.com