The Power Is Shifting From Advisors To Wirehouses

There was a time when Advisors were kings of their domain. Despite working underneath the domain of a large wirehouse, they still maintained creative control over their environment. But as the wealth management industry continues to change and big names grow more dominant across the landscape, advisors are heard uttering more and more, “There was a time…”

That’s just the reality of life. The only constant is change. For advisors, that change seems to be toward more strictly controlled options and opportunities.

The changes across the industry can be seen in four particular areas:

  1. The Broker Protocol: It has been two years since Morgan Stanley and UBS left the Protocol, and if rumors are to be believed, Merrill Lynch is likely to follow suit. That means advisors will be facing more risk and the process for moving to other firms or models will change.

  2. Recruiting: The big wirehouses are not recruiting like they use to. Furthermore, they’re looking to pay a more traditional salary, rather than allowing the commission-based approach of the last generations continue.

  3. Retirement: Retire-in-place programs are becoming the norm, encouraging advisors to sign on earlier in their careers, and essentially binding them and their teams for the next decade-plus to their firms.

  4. Compensation: Compensation structures are changing across the board. Bonuses are diminishing and advisors are being pressured to add household or sell bank products. 

With the way the industry--and in some ways the world--is trending towards larger corporations with more complete control, none of this should come as much of a surprise. The power is shifting--if it hasn’t already--from advisor to firm, and Advisors are becoming more bound to their firms by more restrictive programs. That means limits on creativity, control, and freedom over how they manage their business.

The biggest concern for successful advisors is the loss of the entrepreneurial spirit that first inspired them to become part of the business. If they wanted to be salaried private bankers, they would be salaried private bankers, but that’s not the advisor spirit, or at least it hasn’t been in the past.

In reality, firms have been in the driver’s seat for awhile and they’ve been steering advisor compensation towards salary-bonus for all . And as wirehouses cut budgets for support staff, encourage cross-selling to maximize compensation, and rope-up advisors with decade(s) long retirement program, the firms only grow stronger.

That means cash compensation could get cut and deferred, and team grids might get eliminated, meaning junior advisors would lose the benefit of their senior partners’ higher earnings. Stricter post-employment restrictions could include non-competes and prohibitions from contacting clients for up to 90 days after resignation.

Nonetheless, advisors still have options if they want to go the more traditional route. Regional firms tend to be less bureaucratic than the wirehouses, while Boutique firms offer independence alongside wirehouse-type support. And for those with the true entrepreneurial spirit, they can always go the way of the independent broker/dealer and registered investment advisor channels, which have only grown in strength over the years.


More Articles