Advisors as Valuable as Ever

After a very tough period, there’s a popular notion that demand for retail brokers has ebbed and that deals are down dramatically. But those assertions belie the fundamental strength in the retail brokerage industry. Now more than ever, firms are actively seeking top producers.

Even when times were flush, trainees struggled and Wall Street lost top brokers faster than it could create them. It’s a stressful business in which talent retention has always been a central issue. And “The Wall Street Journal” now says the industry is on pace to lose 35,000 brokers this year, three times the number that left in 2002 as part of the post- Internet bubble exodus.

Still, the work of the retail brokerage industry has been a rare bright spot in the overall industry over past 18 months. Wall Street is struggling to hold on to the few profitable areas left in the industry. And perhaps more ominous, young advisors are bailing out of the industry before they can solidify their books, leaving a widening talent vacuum.

The qualitative changes in broker recruitment are strictly on the margin: Mid- to lower-level producers who once easily jumped ship may not receive permission to board new vessels anytime soon. Firms have fewer dollars to spend on luring new talent into their offices. From firm to firm, nearly everyone has decided to focus those dollars on the same people, especially the upper echelon – advisors with more than six years experience, $500,000 in gross commissions minimum, and $50 million or more in assets.

Packages are below the peak levels hit in mid-2008 – about 240 percent to 250 percent of 12 months commissions. Now they have moved back to 175 percent to just over 200 percent for the cream of the crop. On a percentage basis, the drop is noteworthy, but historically speaking, the numbers are Olympian. In 1985, 30 percent upfront money was considered big.