The Big Picture

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Feb 7, 2013 11:41 am

Well every advisor has been waiting for the HUGE event of wealth transferring from Baby Boomer parents to Baby Boomer and Baby Boomer moving into retirement, and guess who else has been waiting for it? No surprise but the Big Four firms!!! So what? Well, I think the what is how advisor and firm are each preparing and how the experience just might not be as advertised.

In my opinion, the Big Four have a dirty little secret. The secret is gradually being revealed. Here is how it goes. The firms lure advisors from other firms with what appears large recruiting packages that lock up the advisor for up to 10-years. Plenty of time to make the move and fulfill their view of the industry. Each year the newly recruited advisor is at one of the Big Four firms the firm will cut their payout and gradually add to some deferred comp scheme that has some “cliff” vesting component. The advisors as advisors do will spend their new recruiting bonuses on something rewarding themselves as well as to make up from the lost revenue and phantom taxes owed on the forgiveness payments on the recruiting bonus loan. Each year the advisor will become more restricted and more dependent on the Big Four firm that they have joined. The advisor will constantly wonder when and where does it stop. Surprise isn’t doesn’t stop until the “new” comp plan is fully converted.

What is the “new” comp plan? In my opinion, the “new” comp plan finally answer the question of who does the client belong ? Is it to advisor or firm? The answer is firm!!! The firms see a mountain of cash with the boomers. They want their piece but competition with Fidelity and Schwab has been fierce and quite frankly they have been losing! Why are they losing? Simple, I believe they think cost is the over arching issue. The cost of sharing commissions with advisors that over compensates them for the new role that advisors will be playing in the future. What is the advisors new role? Oh, you haven’t heard? You are going to be the equivalent of a bank loan officer. No, you aren’t the guy or gal that will make the decisions. You will be the one that sits with the customer (no longer clients) and fill out a “Financial Plan” that will help unveil assets and liabilities when the data collected is imputed into the system. The system will spit out a list of solutions from an advisory program, a loan, a credit card and insurance. Sounds good, except the Big Four believe all you did is gather the data, and really what is that worth? Is it worth splitting the revenue with you for eternity? I mean the firm is really managing the money, printing the statements and providing the local office. They provide the new software that is going to be a new best practice of automatically putting calendar reminders for you to set and hold meetings to review client accounts and it even allows you manager to see how you are doing in relationship to it. You know in case you aren’t keeping up with it your manager can come and coach you some!!!

Since you are no longer managing money then what are you going to do? Well, in my opinion, the Big Four are tired of seeing established advisors sitting on their books collecting fees from advisory and trails. You leave the office early, you play golf, you haven’t added any new key households and basically you haven’t worked in years but just lived off the work you did years ago! To top it off, you are making hundreds of thousands of dollars!!! We need to get you and the rest of the slackers back in the game.

So how do we do that? In my opinion, we look back at my good ole loan officer model. Loan officers get a salary (Yes, base salary plus performance bonuses) that do not share in the percentage earned on a loan. Why should you share in the percentage of a household? So you can sit there and do nothing but wait on trails? No, no, no, your main purpose is to go get net new money and households. So how do the Big Four get you focused? Well, in my opinion, it is pay you a set amount or percentage of revenue on New Households and get rid of the trails. Trails and annuities business makes you flabby around the middle and let’s you hit that golf course, but by keeping you on a bonus structure you have to work every day!!!

Don’t like it! Well, that is okay as long as you realize this early, and not later. Those handcuffs with clauses saying that they can garnish your wages from future employers are going to be the same thing as heavy chains (Remember that ghost from Dickens’ Ebenezer Scrooge in A Christmas Carol) to carry. It is amazing that the Big Four Comp plan (yes, all four and I know there is one firm that says their comp can be explained on one page. B.S.!!! In reality it is 25 complete pages full of minimum tickets charges, charge backs, admin fees, etc. ) need an accountant engineer to explain for they have one simple purpose locking up the advisor!!!

Yes, the financial industry has great potential but not everyone will experience it in the same way. The firms are owned by banks and banks, in my opinion, do not like to share especially since they are cutting costs drastically and have reached the bone in order to keep their return on assets at 12%. In order to do that going forward, the Andrew Carnegie business model has to be implemented. Don’ t know what that is? Oh, it is to constantly cut the workers pay and to increase the amount of time worked. I just hope there are no need for Pinkerton Guards!!!

If you are an established advisor, I think you should do what I am going to be doing in the next few months when the chains come off. I am going to go with a strong, well respected and thoughtful independent firm that will value me, my business and my clients and not try to constantly game my clients and I. I hope many of you will at least do this simple test. Draw three columns. At the top of column #1 write What the firm asks you to do? I write move clients to advisory, do financial plans, do loans and attract new clients. Column #3 Write, what the firm does for me? I have a hard time writing things in this column. I only know what the executives say like the Name is incredible. That we are well respected. We are admired by business and for diversity. However, I do not see us being listed in the Top 100 places to work, or clients rating us high in satisfaction in fact we rated extremely low. I hear complaints about the bank. I’ll stop there but you can see it is difficult to write the column. Column #3. Write What does the firm do TO me? Well they gave me a retention package. It equaled about 40% of my trailing 12-months, but they cut my compensation by 2%, added a hurdle and eliminated the cash end of the year bonus (About another 3%),. If the single year was all, then I could see that really adjusting the retention from 40% to around 15%,!!! Unfortunately for me, they have cut my compensation MULTIPLE times, and the retention package has completely disappeared when the compensation cuts are taken into account. Yes, every year they change comp. Yes, in addition, they add new fees that on top of the cuts reduce comp and they eliminate comp on some products all together!!! My firm cut our support staff to non-existent. We have one CA for an entire office of 5-Advisors. They are telling us to look for cheaper office space. They also disclosed that cutting comp in the future is to be expected for no one should be compensated for doing the same level of work each year. You must increase if you want to make the same.

So I can’t tell if The Big 4 are Ebenezer Scrooge or the return of Andrew Carnegie, but no mind I am not going to be suckered again.