Wall street corner-office advisors are taking home quite a bit less these days than they were in the late 90s and early 2000s, and if you cut out recruiting and retention bonus money, they earn just a few shekels more than your average top RIA advisor, according to new research published Monday by Jeff Spears, co-founder and CEO of Sanctuary Wealth Services. Yes, that’s a lot to cut out—amortized over time, bonuses still represent nearly half of the annual pay pocketed by your average top wirehouse broker. And yes, Sanctuary is an RIA firm, so you would be forgiven for worrying that Spears is biased.
When he went back to the wirehouse brokers he interviewed to relay his results, they were uniformly aghast with disbelief. “The corner-office brokers had a very low opinion of the independent RIA,” says Spears. “The corner-office broker views the independent wealth manager or RIA as a financial planner or an accountant, dealing with more mass affluent clients than they do. So that was their common response when I went back to these people who were so kind to participate in this. They said, ‘you’re kidding me.’”
Spears based his calculations on individual interviews with 60 brokers who have average production of $3.67 million and 25 RIAs with average assets under administration of$533 million. That’s about as close to “apples and apples” as he could get.
The RIAs he spoke to averaged about $875,000 in compensation, with no bonus money, according to his interviews. Some 91 percent of that comes from investment consulting, and three percent each from stocks, bonds and hedging. Meanwhile, since 2003, average pay for the brokers he interviewed has fallen from around $2 million in direct comp and $1 million in amortized recruiting bonus money, to around $1.2 million in direct comp and $1 million in amortized recruiting bonus money, according to Spears calculations. This is primarily because pay on stocks, bonds and IPOs has been nearly wiped out, dropping from $1.6 million to $50,000 a year. In the meantime, fees on investment consulting have quadrupled to around $400,000. Spears predicts headline comp and bonus numbers to fall further to around $900,000 and $670,000, respectively, over the next three years. As it stands today, stocks, bonds, IPOs and “special situations,” account for 6 percent of broker comp, alternatives account for 22 percent, loans and deposits for 18 percent and investment consulting for 34 percent.
“The decline in comp for stocks, bonds and IPOs is due to decimalization, clients’ unwillingness to pay for research and a falling off the cliff of IPO issuance,” says Spears.
While the bonus money can’t be ignored, Spears predicts the narrowing gap between headline compensation for brokers and RIAs is going to push more brokers to go the independent route. “If you’re base pay is trending down to parity with what an independent advisor makes, should I be willing to sell my soul for this recruiting bonus? The brokers felt very strongly that because of client feedback, they weren’t going to be unable to generate much compensation going forward from the latest and greatest product from Wall Street, and I think that that was one of the real aha moments in the research for me. That this is client-driven.”
Jeff Spears, co-founder and CEO of Sanctuary Wealth Services, has 25 years of experience in wealth management and spent many of those years Bank of America Private Bank.