A decade ago, if you entered the financial services business and wanted to deal with the public, you had limited choices. You could go to a wirehouse or regional brokerage, where company policy (and regulatory oversight) forced you to concentrate on selling. Or, if you wanted a bit more autonomy — and a lot more risk — you could try your luck as an independent. If you thought you had a lot to offer in the way of financial advice, most likely you would take the RIA route — creating financial plans and portfolios for a fee. To change career paths or to broaden your practice, you were usually forced to jump firms.
But these days, career paths are crisscrossing. As a result of broker dissatisfaction with the status quo, the increasing clout of top producers (at some firms) and the need for firms to keep successful reps happy, we're beginning to see quite a bit more flexibility. The most important development is the emergence of “in-between” employment options for reps, meaning firm producers are free to mix and match the characteristics of wirehouse practices and independent offices. Call it an à la carte approach to keeping brokers satisfied.
Major firms, like Wachovia and Raymond James, and smaller firms, like Richmond, Va.-based Anderson Strudwick, currently offer multiple options on how to associate with them. It should come as little surprise that the candidates for these positions tend to be the most successful reps — those with clean records, annual production in excess of $250,000 and assets under management of $25 million or more. But the emergence of these options is also good news to lower-producing reps because it signals a new flexibility at the firms.
The options available include:
W-2 employee working for the private client group in a traditional branch setting.
This option is for the rep that is not ready to make the leap to complete independence but craves greater autonomy. Under this plan, he can control his own business and P&L, yet still receive some benefits of being an employee. The firm handles human resources, payroll, technology and administrative support associated with an independent branch.
The broker is responsible for every aspect of running his business, soup to nuts. He receives a payout of 90 percent or more and has the ability to sell his book on the open market when he chooses.
Fee-Only, Registered Investment Advisor (RIA)
The broker associates with a broker/dealer only for clearing and custody purposes.
The bank model can take two forms. In the first, a brokerage firm like Raymond James establishes relationships with community banks, with the firm itself handling clearing services and support of the bank branch-based brokers. In the second, a bank holding company, like Wachovia, allows brokers to work a territory of its bank branches, which tend to funnel warm leads to the broker.
On My Own and No Worries
Brokers looking to make a jump often arrive at the desision because they are vexed by the hyper-vigilant compliance environment at wirehouses. Indeed, even top wirehouse reps (those with high production, fee-based books and clean U4s) are finding it difficult to work in an environment that severely limits marketing tactics used extensively in the past, like sending monthly client newsletters and holding prospecting seminars (see cover story, page 34).
Lower payouts, the result of corporate financial concerns, also have become discouraging for wirehouse brokers. Most brokers can tolerate a certain amount of dissatisfaction until one final-straw issue pushes them to consider leaving. Still, too many soldier through such dissatisfaction, because the fears of managing “everything” keep them from investigating alternatives to the hothouse life.
The worries — that moving towards independence requires a second career in b/d management, for instance — do not hold up under scrutiny, says one top producer who chose to leave the wirehouse after a decade. “I can complete all my administrative tasks in less than one hour a day,” he says. In the four months since jumping to an independent practice, he has transferred 99 percent of his clients' assets. “My clients were primarily concerned that their assets would be safe,” he says, “Our clearing arrangement with Fidelity provides that.”
For those considering a change but who remain unsure about which ‘tweener option makes the most sense, here is a list of questions that can help determine a proper fit:
Do you want or need a significant financial transition package?
Do you need the comfort and marketing clout of a major name behind you?
Does the idea of quasi-independence, resulting in a lower payout than complete independence, work for you?
Would you feel better about testing the water of independence in a controlled way and still be treated as an employee?
Complete Independence Considerations:
Are you up for changing toner in the copy machine and negotiating with the landlord?
Can you handle your own marketing and public relations?
Are you looking to retire in the next five to 10 years with the ability to monetize and sell your book on the open market?
Do you crave autonomy?
Fee-Only RIA Considerations:
Are you prepared to handle the compliance oversight of being a registered investment advisor?
Bank Brokerage Platform Considerations:
Are you looking for a referral source that can only be provided by a banking system?
Brokers looking for a change should consider what practice environment works best for them. Not until a rep clearly understands the pros and cons of independence, wirehouse life and the ‘tweener positions can he be sure he is choosing a career path that will allow him to realize his potential.
Writer's BIO: Mindy Diamond
founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting (www.diamondrecruiter.com).