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A Profile of the Registered Rep

By now wirehouse brokers and other advisors have heard repeatedly the drumbeat of the new order in their world: the paradigm shift to a fee-based industry in which clients are steered into individually managed accounts. At this point, however, the fee-based revolution has not lived up to the hype. Most brokers are still doing what they always did earning commissions by buying and selling investments

By now wirehouse brokers and other advisors have heard repeatedly the drumbeat of the new order in their world: the paradigm shift to a fee-based industry in which clients are steered into individually managed accounts. At this point, however, the fee-based revolution has not lived up to the hype. Most brokers are still doing what they always did — earning commissions by buying and selling investments for their clients.

This is one of the key findings in a study of 4,106 registered representatives. Consultants Russ Alan Prince and Sunny Patpatia along with Jordan Berlin, chairman of C.E. Unterberg, Towbin's private banking group, co-authored the “state-of-the-industry” study, which was underwritten by Institutional Investor Newsletters and is available at for $10,000 a copy.

The study was intended to give brokerage firms a glimpse into how their reps are faring in the ever-changing financial services industry. But its findings are useful for brokers themselves, because it highlights what top brokers do best.

Respondents were divided into four quadrants, with Quadrant I, being least successful, and Quadrant IV, the most. The reps were further divided by their business models, identifying them as wealth managers, product specialists or investment generalists. The bottom quadrant, the least experienced brokers, had the fewest clients and the least assets. The top brokers had the most assets, but had fewer clients than the successful brokers in Quad III, who had not yet culled their rosters to focus on high net-worth accounts.

Prince says one of the most surprising discoveries was how little managed account business most brokers do. The study found that about 68 percent of the respondents said individual securities were their product of choice. Only 5 percent focused on managed accounts. About 24 percent of the reps sold mainly mutual funds, and only about 3 percent said they sold products other than those three.

Not surprisingly, the 5 percent who concentrated on managed accounts were mostly from the top quadrants — brokers with more than $400,000 in production annually. In Quadrant III, 62 percent handled managed accounts and in Quad IV, 23 percent. In Quad I, only 2 percent of respondents had gotten into managed accounts. In Quad II, the figure was about 12 percent.

“Of the 4,106 [registered representatives] in our study, only 202 — less than one in 50 — generated more than half their revenue from the sale of managed accounts. However, [respondents] understood that managed accounts were of increasing interest and cachet to affluent investors who wanted to take the next step up from a mutual fund, and were therefore important for [reps], particularly those who wanted to attract those wealthier clients,” the study says.

Catering to the Wealthy

The study also confirms that wealth management, which has become the mantra of wirehouse marketing departments, does indeed pay off. The survey found that, on average, production among respondents had fallen nearly 35 percent in the 12 months ended last October. The worst damage was suffered by Quad I brokers, whose gross tumbled nearly 54 percent. The only group to score a gain were the Quad IV brokers, who tended to provide a comprehensive planning approach or specialize in certain products — in both cases for the wealthiest clients.

In general, the elite brokers have less interest in managed accounts than the Quad III group, a kind of bulge bracket of successful brokers who made up more than 40 percent of those polled. When it comes to managed accounts, the study found, brokers in the fourth quadrant “were quite disinterested, most probably because they had already made the shift from individual securities to advanced products, or because they had already achieved the product mix that suited them and their clients and saw no reason to change.” In addition, these brokers are so well established that they aren't seeking new ways to bring in business.

Still, there are signs in the data that more brokers want to get into the managed account business. For example, 26 percent of those who mainly sold individual securities and about 34 percent of those who mainly sold mutual funds, were interested in moving to managed accounts.

Those who focus on managed accounts, though, are critical of the tools and support they get from their firms. They expressed the most dissatisfaction with portfolio allocation flexibility, marketing support and completion portfolio capabilities, which include “the ability to accommodate existing holdings, especially concentrated securities positions.”

Among all respondents, the study says, the top three greatest concerns were finding wealthy clients, generating significant asset growth and competition for clients. But also near the top was obtaining resources from the firm and getting the latest support technology.

Technology was especially important to top brokers, who were not satisfied with tech support in portfolio management; statement viewing and production; contact management; investment product analysis and comparison, and financial planning tools.

“Our data showed that brokerage firms were not supporting their most senior and profitable [reps] in the way they needed and wanted to be supported,” the study says.

While the study has raised new questions, it also confirms some widely held views. For example, the study shows that the top brokers are a bit more entrepreneurial and sometimes at odds with the giant companies for which they work. The survey also found that the more successful brokers are, the less satisfied they are with field and branch management. Not that field management fared better with the less successful reps. Close to half of all the reps said their field managers were “not very” helpful.

Changes Ahead?

So, are brokers looking for the exits? Depends on what level of broker you ask, the study found. Overall, one in five of the respondents said they were “very” or “extremely” likely to change brokerage firms at some time in the next two years. But when the top brokers were asked, 38 percent said they would change firms within two years.

By far the leading motivators for switching firms were a general unhappiness with “current arrangements,” followed by the need for better business support services. Other reasons were a need for better compliance functions, for less pressure to change business orientation — including the freedom to remain commission-based or to keep less affluent clients — and for better education and communication on products and services.

Prince says the study shows that firms are still following a “one-size-fits-all” method with their reps, and it's not working anymore.

In particular, “the ‘one-size-fits-all’ support platforms were of little use to elite [reps] and their affluent clientele. Broker-dealers interested in retaining these profitable [reps] should respond to this early warning signal and create response platforms to better serve the elite [reps].”

The news out of the survey is mixed for investment wholesalers. Only a third of reps said they were working with an “excellent” wholesaler and most of the reps who said that are in the first quadrant, the least successful reps. Only 2 percent of the Quad IV stars said their wholesalers were excellent.

More bad news for wholesalers: When it comes to mutual funds, on average, reps choose from just three-and-a-half fund families. And the biggest factor in choosing funds is what the firm says. The No. 2 factor was a strong relationship with a wholesaler. Rounding out the top five factors in fund selection were effective and efficient problem resolution, service quality and responsiveness, and long-term investment performance.

What keeps brokers up at night? Reps were asked what the biggest threat is now and what it will be in three years. No surprise, in both cases it was other brokers. But independent financial advisors, regarded as the second biggest threat now, are seen as less of a problem than money-management firms three years from now.

Prince says the study shows that what looked like competitive threats a year or two ago — online brokerages and bank-based brokers — are no longer a great concern. “This last finding is significant given the fact that it was not all that long ago that online brokerages were being characterized as the death knell for traditional brokerages,” says Prince.

Prince says the respondents, who were paid a $100 honorarium to participate, were pared down from a list of 25,000 reps representing wirehouses, regionals and boutiques. Several criteria were used to screen participants. To eliminate part-time brokers, only respondents who generate at least 75 percent of their business from individual clients were permitted to participate.


  1. (15.1 percent of respondents)

    • less than $400,000 in annual production
    • fewer than 150 clients
    • 12-month production -53.9%

    Novices with few clients, little specialization

  2. (35.2 percent of respondents)

    • less than $400,000 in annual production
    • more than 150 clients
    • 12-month production -46.2%

    Managed to bring in the clients, but not profitable ones

  3. (40.2 percent of respondents)

    • more than $400,000 in annual production
    • more than 150 clients
    • 12-month production -26.7%

    Stressed by success: These brokers are making the big numbers, but doing it the hard way with too many accounts

  4. (9.5 percent of respondents)

    • more than $400,000 in annual production
    • fewer than 150 clients.
    • 12-month production + 2.2%

    The crème de la crème. They have a manageable number of rich clients

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