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BOMs Work More, Earn Less

Used to be that plenty of FAs hoped one day to become branch managers. That was then.

In the 1970s through the early 1990s, plenty of financial advisors hoped one day to become branch managers. It was a highly esteemed position—and generally an option only for a firm’s top producers. The compensation was also quite alluring. “In those days, the job came with a generous salary—and a relatively high share of branch revenues—often in the neighborhood of four percent,” says Chip Roame, principal of Tiburon Associates, a Tiburon, CA-based industry research and consulting firm.

Those fortunate enough to land this illustrious job were typically revered by the advisors they managed. “Branch managers were, quite simply, viewed as the industry’s ‘rock stars,’ ” Roame recalls, “the guys who had it all.” 
But in the mid-to-late nineties, as the stock market soared, the job of branch manager became viewed as less rewarding, particularly when compared to a top producer’s earnings potential, he says. With that, its prestige began to plummet. “It got to the point where top producers often saw the branch manager as the guy who couldn’t do it, so he taught it,” Roame says.

Then came the 2000s. As the stock analyst scandal, mutual fund scandal, and “every other scandal happened,” Roame says, “the job of branch manager changed drastically.” Compliance rose to the top of managers’ responsibilities. Firms were merging -- and eliminating managers along the way. A focus on increasing profitability forced many firms to have managers oversee more than one branch. And as individual B/Ds saw their brands become severely tarnished, their roughed-over branch managers were charged with defending the firms to their advisors.

Perhaps the toughest pill to swallow? Those who’ve managed to keep their jobs have been “rewarded” with huge pay cuts.

“It all used to be pretty standard,” says Andre Cappon, who heads The CBM Group Inc., an international industry research and consulting firm in New York. A typical wirehouse branch manager “could easily expect to make $400,000 or more a year.”

Branch manager compensation has fallen by as much as 65 percent over the last year or two due to industry consolidation, office closings, and the fact that the supply of these folks far outweighs demand, says Rick Peterson of Rick Peterson Associates, a Houston-based industry recruiting firm. “There is less money out there, so fewer people are investing. Branch offices are subsequently closing, and firms have less money to pay their managers,” he says.

Today, BoM compensation consists of what he calls a “minor” salary and a yearly bonus which is “highly subjective. There is no one-size-fits-all formula for it. It depends on what a firm is looking for: branch production, recruiting, quality of business, etc.”

In many cases, bonuses have been ratcheted down to one-half of 1 percent of branch revenues, Roame says.

When the complexing model took hold at the large firms, compensation for those managers was also affected, Cappon adds. It “was really hard to argue that a complex manager strongly contributed to the productivity of 50 to 100 reps. Over the last few years, producing managers of large branches become non-producers,” he says. “And managers in medium and small offices have either opted, or been encouraged, to become producers, too, so they can keep the branch profitable and make a living.”

There are about 3,000 BoMs left in the industry today, Peterson says, and he estimates that one or two are let go each week. “The positions generally only get refilled if they’re in strategically important areas,” he says.

“Some managers are winning the remaining jobs as several branches consolidate,” Roame adds. “Some are retiring; at least 500 have gone back into production full or part-time, and some are leaving the wires to try regionals, independents, and RIAs. But the unfortunate truth for all these folks is there aren’t many places to find the compensation they once had.”

Which raises the question of whether the “branch profitability” component of a manager’s compensation could create a conflict of interest wherein he might “look the other way” on certain issues if it means increased branch profitability.

“I don’t see that happening any more or less than it did when BoMs made more money,” Peterson says. “Managers can impact branch productivity by encouraging reps to sell more packaged products and work with managed accounts -- rather than transactions. But they are very closely monitored by their firms. It seems impossible for them to knowingly look away from any unscrupulous advisor activity that would make the branch more profitable without getting into serious trouble.”

A legacy wirehouse branch manager in New York agrees. “We go through so many levels of compliance with everything,” he says “And job security is at such a low that, if there were any doubt that a branch manager was doing anything wrong, he knows he’d be replaced in a heartbeat. Who’s going to risk being terminated for a half of a percent override? Most of my peers are struggling just to make ends meet.”

Roame agrees that, in most cases, managers are too closely monitored to act on any conflict of interest. “They do face the issue though.” And there are other conflicts, he says, such as when a top producer is considering moving to another firm. “The manager’s motivation may be to keep him at all costs -- as he gets a skim on the guy's production. I think the firms are viewing this as a no-win proposition.”

What Peterson says he is finding most among BoMs these days a huge lack of enthusiasm—and even downright despair. However, he also thinks the tide will change for those who can hang on. “Wall Street almost always overreacts to ups and downs,” he says. “I think that, by the end of this year, the downsizing will be largely over and, all of a sudden, we’re going to see a need for branch managers.” As is typically the rule in cases of supply and demand, pay scales should subsequently rise. “But many of the folks best equipped to fill those jobs will have left – not just their jobs, but very, often the industry,” he says.

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