Brokers who got checks report higher satisfaction but many still have their eyes on the exits

June 9, 2010 — 6:37 AM UTC by Brooke Southall


Brooke’s Note: When the wirehouse brands got clobbered in 2008 by a series of adverse events [largely of their own doing], it seemed to mark an historic opportunity for companies like Schwab, Fidelity and LPL to win scads of their elite talent. Instead, just the opposite happened. With their backs against the wall, Bank of America/Merrill Lynch and Morgan Stanley Smith Barney paid billions of dollars to top producers just to stay put. It was like the wirehouses had pulled a rabbit out of a hat. Yet increasingly I’m hearing a growing conviction that those retention bonuses were not as formidable a device for retaining talent as they might at first have seemed. Here are some thoughts about that.

1.) Top producers who entered into retention contracts at their wirehouse firms represent about 66% of the assets under advisement at wirehouses, according to a study by Aite Group: “Wealth Management on the Move: An End to the Breakaway Trend?” The other 66% of brokers represent only a third of the assets. There are about $4.7 trillion of assets controlled by wirehouse brokers.

2.) There were about 22,000 brokers who got retention checks, according to Jeff Spears, principal of Sanctuary, a San Francisco-based group that makes homes for advisors who break away. Of those 22,000, about 8,000 have $300 million or more of assets under management and another 14,000 have $100 million to $300 million under their control.

3.) The view among brokers that accepting the checks is a Faustian bargain is much more common than most people perceive, Spears says. The retention checks were written often based on the value of the book of business at a time when the market was severely depressed. Now that the markets have recovered considerably from their lows, those checks look less spectacular relative to the production power of the re-flated book. “Some people needed it and spent it and will never be able to leave,” he says. “But I truly believe a high percentage are responsible and disciplined.”

4.) Statistics in the Aite study seem to bear Spears out. Among brokers with retention contracts controlling $60 million or more of assets, a big majority say there is a less than 50% chance they will break away. But these statistics should only give wirehouses minor comfort. “It appears that the retention bonuses have bought wirehouse firms time, but not the undivided loyalty of their most valued brokers,” the report states. In fact, four out of five retained brokers say there is some chance that they could leave their broker in the next 18 to 24 months and 10% of them say it is more likely than not.

5.) Most of these advisors accepted the retention checks at a time of duress because the market was crashing in 2008 and the brokerages themselves were often in financial trouble and/or in the headlines. “Everybody thought the world was coming to an end so take the check and figure it out later,” he says. Spears adds: “If they didn’t take it, it was a huge red flag” that they were considering leaving the firm – and, in fact 95% of brokers took the proffered deal.

6.) The satisfaction levels of these two groups of wirehouse brokers – those who got checks and those who didn’t — is quite different, according to the Aite study. Of the brokers with retention contracts, 21% say they are “very satisfied” and another 48% say that they are “satisfied.” The brokers who were not paid bonuses report being “very satisfied” only 16% of the time and “satisfied” only 29% of the time. “That these financial advisors were not deemed worthy of a redemption package must be responsible for some of the dissatisfaction they report,” the report says. The report is based on responses from 169 captive brokers.

7.) But though these retention contracts raise satisfaction levels, their attractiveness has limits. “All we have to go on is our reputation,” says Mark Channick, a principal of Delphi Private advisors in San Diego, which manages nearly $100 million of assets. He and two fellow brokers at Bernstein Global Wealth Management chose to forgo a signing bonus from a wirehouse before their recent breakaway. “With a time horizon of decades, it wasn’t even a debate.” He added: “It’s hard to say [to clients]: it’s better for you because it’s so much better for me. How do you say?: We’re going to take you from one set of conflicts to another.”

Mentioned in this article:

Aite Group
Consulting Firm
Top Executive: Frank Rizza

Share your thoughts and opinions with the author or other readers.


Jeff Speras said:

June 9, 2010 — 1:15 PM UTC

I talked to a broker who had received a retention bonus yesterday and he told me he invested the bonus near the market lows of 2008/09 and now is in a place to pay back the retention bonus and keep the portfolio profits!


Ron Edde said:

June 9, 2010 — 3:17 PM UTC

A surprising number of brokers mistakenly view retention bonuses as irrevocable contracts with no escape hatch. The fact is that any broker who accepted a retention bonus can leave at ANY time, as long as the any balance due on the advanced funds is repaid. That can be accomplished either by the advisor returning a portion of the advance that they did not unwisely spend, using some of the transfer bonus paid to them by a new firm, or a combination of the two. This is not to say that every advisor should head for the exits just because they can, but if a compelling opportunity is beckoning from a different firm it can (and probably should be) explored.


Tuan Nguyen said:

April 25, 2012 — 7:58 PM UTC

Retention checks can be paid by venturing into your own practice as an RIA. Sometimes the numbers make sense and brokers can recoupe in a few years after that it’s all profit.


Brooke Southall said:

April 25, 2012 — 8:02 PM UTC

Well put — the difference between receiving a bouquet of flowers and planting a garden of perennials.

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