More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
Data collected by an expert studying historic pay differences between women and men in the brokerage business shows that, although the overall compensation gap has fluctuated over time, it has remained significant over the past 30 years.
The gap in 2010 was 41.6% for women classified as personal financial advisors by the U.S. Census and 37.3% for those classified as securities, commodities and financial-services sales agents. In other words, for every $100,000 earned by a male colleague, a women in these respective job categories earned $58,400 and $62,700, respectively.
Since 1988, the pay gap has ranged from a high of 46.9% that year, when the markets were down, to a low of about 17.1% in 2007, when the markets were booming.
In 1995, the pay differential in the securities-sales category was 45.9%. Women in the broader group—sales representatives for finance and business services—earned 30.8% less than men.
“The average difference for advisors with the same experience was about 20% [in the mid-‘90s],” said Janice Madden (left), a sociologist at the University of Pennsylvania, in an interview with AdvisorOne. “Wage ratios by gender have not changed much in the occupation of securities sellers, based on the aggregate data.”
Why the gender discrepancy? “There are lots of differences and factors at work,” said Madden, who looked at the mid '90s when both Merrill Lynch (BAC) and Morgan Stanley (MS) faced high-profile discrimination lawsuits. (She examined the pay of about 2,000 women and 15,000 men, based on the fees and commissions they made on about 1 billion trades at the time.)
One influence on the pay differential may be that women are concentrated in the lower-paying brokerage firms, she says. In addition, women may get fewer and “worse” accounts.
Plus, client introductions may not be as frequent or advantageous for women in the business. “In other words, there are not the same opportunities,” Madden said.
Her paper “Performance-Support Bias and the Gender Pay Gap Among Stockbrokers” will appear in the June issue of Gender & Society and is groundbreaking in that it show that bias can affect performance-based pay, according to the University of Pennsylvania.
Madden, the first researcher to gain access to this type of in-depth brokerage data, analyzed the data after being retained as an expert witness for the plaintiffs in their class-action lawsuits.
At both firms, men and women were paid entirely by commission, using an algorithm that was the same for everyone and could not be changed by managers. Madden found that the female stockbrokers were not paid—or given raises—based on subjective performance reviews by their managers.
Madden, however, found there was no difference in the ability of women to make sales compared with their male colleagues. Both lawsuits were eventually settled before trial on terms that the media regarded as “favorable to the plaintiffs.”
“Stock brokerages are less hierarchical than most organizations in that they have a relatively small number of job levels,” Madden said. “Stockbrokers, in particular, are all in the same job—there’s no hierarchy—and their pay is based entirely on commissions generated from their sales of securities, not on supervisors’ more subjective evaluations of their performance.”
Since the ‘90s, firms have put in more policies and standards regarding account transfers. They’re also paying more attention to the size of accounts being “churned” or transferred, the sociologist notes.
“By adjusting the algorithm, this could lead to changes in some of the discrimination,” added Madden. Still, she concludes, pay figures simply “have not budged much” in the past two decades.