Wirehouse advisors and breakaway brokers get all the glory. But in REP.’s 2014 compensation survey, bank-based brokerage advisors are the ones with the highest production numbers and the most coveted clientele.
Bank brokers are the largest producers, coming in at an average $920,313 in 2013, the survey found. They also have the second largest client account size, at $922,541, and the second highest asset count at $170 million, topped in both only by RIAs.
Yet bank advisors are the least satisfied with their compensation. They were most likely to disagree with the statement “I’m satisfied with my current compensation plan,” and nearly 40 percent of them believe their pay is below the industry standard.
“They’re working harder than anybody else, and they don’t get paid as much, hence the dissatisfaction,” says Tim Welsh, president and founder of Nexus Strategy in Larkspur, Calif.
But their total pay is not as bad as they think. Bank advisors had the third highest total compensation at $243,906, behind wirehouse and independent broker/dealer advisors. That compares to about $240,000 for the industry average.
“You hear about the investment banker business and you hear he’s making $3 million, and he’s only been out of school four years,” says Scott Smith, director of research for Cerulli Associates. “You remember every exception that makes you feel bad. You don’t think about the 20,000 employees at J.P. Morgan who are making $30,000 a year at a bank branch or somewhere else.”
Bank advisors are also more likely to be paid a salary, where there’s less upside than an incentive-based structure, says Sophie Schmitt, senior analyst at Aite Group. Only 18 percent of all advisors were on salary in 2013, Aite research found, versus half of private banking advisors.
A Captive Audience
The appeal of the bank brokerage sales pitch is that an incoming FA will have access to all of the bank’s clients and be able to prospect from his desk. In other words, no more cold calling.
“The bank brokerage channel benefits from more of a captive lead flow; it’s easier for them to obtain new clients because they’re sitting in a bank branch, and clients are walking in the door,” says Andy Tasnady, managing partner of Tasnady & Associates, a Port Washington, N.Y.-based firm that designs compensation plans for brokerage firms.
That means, however, that the bank owns those clients.
“The bank’s view of the world is, ‘If we’re going to give you access to our clients, our bank clients, you shouldn’t be entitled to full compensation—regular retail compensation, because you didn’t earn anything to get that client,’” says Frank LaRosa, founder and CEO of Elite Recruiting and Consulting. “‘They came to the bank for us and not for you.’”
In a bank situation, clients are often more loyal to the bank, not the advisor, LaRosa says. Clients don’t want to move their investment account because it’s tied to their bank account, and “they’re getting a benefit by having them together.”
So what happens when a bank advisor wants to switch firms or even channels? Their client retention levels tend to be low. When b/ds recruit from the banks, they often run their formulas and deal offerings based on half the bank broker’s assets, LaRosa says.
“Half the business is going to stay with the bank,” he says. “So the reason the advisors aren’t happy is because yeah, they’re doing $1 million in production, but they’re getting paid as if they’re doing $600,000.”
And these days, the wirehouses are recruiting more FAs from the banks—probably because they can get them at a lower cost. In 2013, the wirehouses brought over 609 advisors from the banks, up from 441 in 2012, according to Meridian-IQ.
“[The bank is] a crappy operating environment, where you don’t control your own destiny,” says Welsh. “Your product set is extremely limited to whatever the bank will let you sell. It’s very packaged and transactional; you’re not developing relationships. You’re not running your own business. You’re just an employee.”