The game has changed for brokers who get large, upfront payments as they sign with or stay with big wirehouse brokerage firms, according to a new study, "The Illusory Recruitment Check: What's Next For Wealth Advisors" from Sanctuary Wealth Services.
Jeff Spears believes that "the wealth advisory business model at wirehouses and big banks is broken," he says in the preface to his new white paper. That said, he wants to know the answer to this question: "Why aren't more really capable brokers going independent?" Spears, the co-founder and CEO of San Francisco-based Sanctuary, sat down with AdvisorOne.com/Wealth Editor-in-Chief Kate McBride, in New York, on Thursday.
Sanctuary provides investment, infrastructure and consulting services to brokers who want to become independent registered investment advisors (RIAs), and established firms who want to outsource those services.
In this first of a two-part series on broker compensation, Spears outlines the premise, and in part two, how this is working out for brokers and firms.
The reason he hears most often about brokers staying put at wires is that the "money is not there." It's true that RIAs don't offer the giant, upfront payments that some broker-dealers (BDs) are dangling in front of reps who are deemed large "producers." But Spears argues that the way that this recruiting is done has changed, and that while these payments seem huge, most brokers aren't, when all is said and done, receiving a 300% or 350% payment, because revenue and asset hurdles are not being achieved.
There's also the idea that the independent RIIA doesn't have the big branding and ad campaigns or the cross-selling potential that a Bank of America Merrill Lynch or Morgan Stanley has. So how will these big brokers attract more clients if they go independent?
To Spears, independence means not only leaving the large broker environment of a bank-wirehouse, but also changing to the registered investment advisor way of advising clients.
