I believe it’s bac/Merrill.

leh

I read an article saying EF Hutton has more million dollar producers than MSSB and Merrill combined.

LEH, EF Hutton? Neither of those firms are in business.

Up until the crisis, it was almost certainly Goldman or LEH, followed by CSFB. For the wires, it was probably Merrill (although their accounting for this was Enron-esque - not including baby brokers, etc), followed by UBS WMUSA.

After the crisis, with so much movement lately it’s hard to tell. Fact is, ball is probably up in the air on who’s gonna dominate retail going forward.

Probably GS or CSFB. Can’t imagine GS didn’t have problems with retaining clients last year after all of the problems with ARSs and hedge funds. CSFB probably held up better than GS as their brokers are a little more traditional and thus more likely to retain clients…

AS Goldman

I read an article saying EF Hutton has more million dollar producers than MSSB and Merrill combined.

Has any firm in the history of the world ranked their FAs by excess returns generated by their client accounts?  Is there even a metric to find this statistic at any firm? Does this seem even remotely odd to anyone?

[quote=fubs]Has any firm in the history of the world ranked their FAs by excess returns generated by their client accounts?  Is there even a metric to find this statistic at any firm? Does this seem even remotely odd to anyone?
[/quote]

Nope - how would you distinguish between the bone-headed decisions forced on a broker by a client? The only appropriate measure would be risk-adjusted returns (and we all
know the problems with that) and it would be very difficult to pick
appropriate benchmarks.

Sounds like you’re not an advisor anyway.

[quote=fubs]Has any firm in the history of the world ranked their FAs by excess returns generated by their client accounts?  Is there even a metric to find this statistic at any firm? Does this seem even remotely odd to anyone?
[/quote]

Why would firms care about excess return generated by FAs?

Excess return does not generate revenue.

[quote=Moraen]

[quote=fubs]Has any firm in the history of the world ranked their FAs by excess returns generated by their client accounts?  Is there even a metric to find this statistic at any firm? Does this seem even remotely odd to anyone?
[/quote]

Why would firms care about excess return generated by FAs?

Excess return does not generate revenue.
[/quote]

Would you choose a surgeon for how  much revenue he brought in for his hospital or his success rate at surgery?

And San Fran Broker- If you can’t quantify the excess return you bring to a client, then what service are you charging them for?

[quote=fubs]

[quote=Moraen]

[quote=fubs]Has any firm in the history of the world ranked their FAs by excess returns generated by their client accounts?  Is there even a metric to find this statistic at any firm? Does this seem even remotely odd to anyone?
[/quote]

Why would firms care about excess return generated by FAs?

Excess return does not generate revenue.
[/quote]

Would you choose a surgeon for how  much revenue he brought in for his hospital or his success rate at surgery?

And San Fran Broker- If you can’t quantify the excess return you bring to a client, then what service are you charging them for?
[/quote]

Surgeons deal in life and death.  Please don’t compare a surgeon to an FA.  If an FA screws up and a client loses 10% of his portfolio, he’ll recover.  If a surgeon screws up and a patient loses 10% of their blood, they’ll likely die.

If I were running a hospital, I would choose a surgeon based on how much revenue he brought in.  More than likely, by the very nature of their business, that would be the surgeon that has a higher success rate. 

I can be a great alpha generator, but if my clients don’t tell anybody (and want me all to themselves), I don’t get any more clients.  My business doens’t generate enough revenue and I go out of business.

Really?  The surgeon analogy?

[quote=igrift]It seems to me that every wirehouse tries to lay claim to having the highest production per FA. What is the scoop here? Anyone know which firm is on top or to care to offer their opinion.

[quote=fubs]

And San Fran Broker- If you can’t quantify the excess return you bring to a client, then what service are you charging them for?
[/quote]

Excellent question. What you’re referring to is “alpha”. Most calculations of Alpha won’t include tax efficiency, so this will
need to be considered by the client after analyzing their pretax
returns. This is a fairly standard feature of any reporting system. Basic alpha
is calculated by subtracting the client’s return from the portfolio’s
benchmark return. There are a number of other ways to calculate Alpha
(Jensen’s Alpha for example, but this is only appropriate for
institutional investors).

Alpha, that is, return relative to a benchmark is/should be calculated after a client has been with an advisor for some reasonable period of time. Each advisor will have their own ideas of how long that period should be, and should their clients should have their own. A reasonable benchmark is some kind of Target Date product or an index fund. Mitigating factors are client overrides (I want to hold XYZ stock even if you don’t) and tax efficiency (I own GE with a $0.40 cost basis.)

Tax efficiency, retirement planning and knowledge of fixed income products are probably the primary benefits a financial advisor brings to the table over one of those benchmarks.  While these things can be theoretically calculated, there is such a wide dispersion in the values of observed results that it’s difficult to make any solid assumptions about these things. But, it’s probably in the range of 0.75-1.00% per annum for a retirement and 1.50-2.50% per annum for a taxable account. (This assumes a competent, but not brilliant approach to investing with an advisor that actually monitors the portfolio regularly and who manages it to avoid taxation.) As you can assume, tax efficiency is a major component of any reasonable calculation of Alpha. Whatever the fee is that an advisor charges should be deducted from those numbers.

Retail financial advisors, also, somewhat uniquely, can add alpha by avoiding problems of “market impact” and illiquidity that come with managing larger pools of money. This means that by buying in smaller blocks, they will likely outperform slightly. They can also avoid purchasing securities outside of periods around which a dividend is payed on individual stocks or when indexes are being reconstituted, but this is such a super-labor intensive thing to do that I rarely see it done for anything other than multi million dollar retail account. There are several problems caused by all indexing that skew the performance of indexes themselves, meaning that there isn’t any “underperformance”, but there is a reduction of returns associated with rigid, index-tracking strategies.

Beyond that, the “luxury” of having an advisor is a strong draw for many clients - being able to “safely” speculate a little and have someone to discuss the markets with and not having to manage paperwork and other little hassles on their own. But the value of that is largely self-determined. Additional services such as estate planning advice, a source of other advisor referrals, lending and general family office-type services are also a strong draw. The level of service given by most financial advisors to clients with more than $500k is pretty much nonexistent elsewhere for people with that level of liquidity.

Ultimately, anyone who’s got the brains to accumulate more than a few hundred thousand dollars has the intelligence to use the various internet-based advisory technologies out there and run their portfolio properly in 10 hours a year or so using ETFs. It won’t be tax efficient and they will make stupid choices on the fixed income side, but those things won’t hurt too much. For most Joe Six-packs, this is the right direction. The question is ultimately whether they want to handle that responsibility, stress and hassle. To most people with advisors, they don’t want to do that. They see having an advisor as a luxury that was part of the reason why they accumulated wealth. They would rather concentrate on their career or enjoy their retirement than worry about the proper management of their money. If you don’t know what that feels like, then you probably should do it yourself.

Don’t believe me, this subject has been fairly well studied. Go to your big local library and look at copies of the Financial Analysts Journal, the Journal of Wealth Management and the Journal of Financial Planning for articles on how advisors add value.

Now, fubs, please leave, this is a forum for advisors, not investors.

Nicely done, SFB.

[quote=badmove?]AS Goldman

GREAT response SFB. 

Regarding investor mindset, you hit the nail on the head.  There are many intelligent successful people out there with 500k+ in assets.  Prior to 2008, if you spoke to them in a social setting many said they are confident enough in themselves to be DIY investors.  They had built a business, practice etc.  What they failed to understand was risk adjusted return and most were unprepared for the amount of risk inherent in how they were manageing their money.  They are more humble now, but with all of the controversy that still surrounds our business, they are wary of dealing with an FA.

In my case, I benchmark my client’s performance to the S&P 500.  I do this for 2 reasons, it represents a plain vanilla investment that they can buy for themselves quite cheaply and it is an easy way to evaluate how I do.  My numbers are net of fees etc and I tell my clients (new and old) that if I can not show a clear difference between what I do and the benchmark, then I should be fired.  KISS works as way to communicate what you do, how you do it and provide a method for evaluation.  I don’t specifically get into Alpha or Std Deviation but I do explain the concepts in terms that they can understand and then relate the derived numbers back to their bottom line performance to show them why their account performed the way it did.

To the original question-  the best way to gauge the investment performance of various firms recomendations is to seek out the long term performance of their so called “Recomended Lists”.  Each firm has one- but they tend not to be publicised.  From the firm’s standpoint the only measurement that matters is total commission generated, everything else is a means to that end.  They say the client comes first…the firm comes first, second,third, then the FA, then the client.  Understand that and you will understand why there is no meaningful way to comare the performace of firm recomendations across Wall Street.

Merrill uses excess return vs benchmark in their metrics

I calculate it using Morningstars Portfolio Snapshot.

[quote=traveler]Merrill uses excess return vs benchmark in their metrics[/quote]

Interesting! Is this just for rep-as-pm or is it for everything.
1. Who picks the benchmarks?
2. How’s the blended benchmark weighted?
3. Does it affect comp or anything else?
4. How long have they been doing this?
5. How do they handle non-discretionary accounts that change composition regularly?