It's time to completely rethink personal financial services, including everything from employee pay to fees, training and job satisfaction, according to Jeff Spears, co-founder and chief executive of Sanctuary Wealth Services, which provides consulting, investment and support services to advisors.
From 2007 to 2010, wirehouse assets fell 7 per cent while they climbed 21 per cent for independent advisors, and even further at online self-directed brokerages, according to a recent white paper from Sanctuary Wealth.
“They [wirehouses] still have the lion’s share of private client assets today – they’re already starting to fight back with a couple of items which they have a competitive advantage on. The first is the credit side because almost all of these big wirehouse firms are owned by banks. They have the ability to offer mortgages and corporate loans to their private clients,” says Spears.
“Is that unique? Not really, but…the consumer is not being offered the credit that they need, and if they could be offered that through the private client groups of these firms then maybe that will keep them there.”
But if you look at “the drivers of old” such as esoteric product sales, he says, “I don’t think it’s very realistic to think you’re going to see Wall Street create something there because (a) you’ve got much better dissemination of information through the internet and (b) they [the products] haven’t worked.”
That has hit compensation and is part of a movement (the breakaway movement) that Spears thinks is reaching “tipping point,” as laid out in his white paper, Compensation Parity: Why Clients, Independents and Brokers All Win.
He says “three major things” came out of doing the research. “The first is a very real sense, from the conversations with Wall Street brokers, that we are approaching a tipping point…That most brokers would even consider going independent signals a pretty big change over the years.”
This is backed up by an Aite Group report released last year which found that only one-third out of the 25 per cent of wirehouse advisors (in the study) who were likely to swap employers would consider going to another similar firm, while two-thirds were looking to go to an independent firm.
The second is compensation. “You still make more money on Wall Street,” says Spears, and there are people who are in it “100 per cent for the money.” But, many are not. He thinks two key demographics that could lead the charge are younger entrants and older advisors, who want to enjoy their careers.
According to his research, between 2009 -2011 broker compensation was around $1.1m compared to $875 for an independent advisors. “That is significant, but if you look back…it’s definitely trending down.”
This is linked with the third factor, which is that clients aren’t interested in the high margin products of the hubris days, and this doesn’t offer the kinds of compensation brokers are used to.