Brokerage firms make plenty of nice noises about wanting advisors who put clients first and run their businesses the way they see fit. That may be true. But it is a bottom-line business, and firms also want brokers that can rack up $100-million books and crank out $1 million in annual gross revenue.
Clients can come first with brokers, but assets and revenue come first with their firms.
When Investment Executive asked managers at the 12 investment dealers surveyed in this year’s Brokerage Report Card to describe their ideal advisor, they insisted a happy advisor is a productive advisor. But what drives the firm is production — and lots of assets is often what makes the ideal advisor.
Want to work at top-ranked Wellington West Capital Inc.? The price of admission to the Winnipeg-based firm is a minimum $50-million book and $400,000-$500,000 in gross revenue, according to chairman and co-CEO Charlie Spiring.
Indeed, its takes half a million dollars in production to get you through the door in many of the big firms these days. In the past couple of years, many firms have focused on profitability and targeted higher-value clients with higher-margin products and services.
And the same increasingly selective approach is moving up the food chain to the type of brokers that firms want to employ.
“Our approach is that we want to be the firm of choice for large producers,” explains Hamish Angus, managing director and head of ScotiaMcLeod in Toronto. To Scotia, a “large producer” is defined as a broker generating more than $500,000 in annual revenue. Or “growing advisors” may have less than $500,000 in gross production but “conduct a quality, profitable business with core clients — clients with more than $100,000 in assets.”
These starting points are heading ever higher. Dave Pickett, head of practice management at TD Waterhouse Private Investment Advice in Toronto, reports that the firm’s average book size is $75 million, representing $675,000-$750,000 in annual revenue. With that as the current average of its sales force, it’s looking for brokers with at least that much productive capacity. “That’s our baseline for folks that we’re looking to hire. That’s where we think the sweet spot is,” he says.
However, Pickett suggests, the truly ideal advisor produces double that. “I think most firms out there are looking at a $75-million to $80-million book size,” he suggests.
“We’re looking toward the $100-million book, which is what I think it will take to be in this business going forward four or five years.”
And that certainly appears to be where the business is headed. A few years ago, brokers with $100-million books were a relative rarity. Several years down the road, they may become the industry standard at the big firms on the Street.
Notwithstanding all the high-minded talk about the brokerage business evolving from a sales-driven, transaction-oriented business into one focused on advice and relationships, at the end of the day, firms still really want brokers that can bring in clients.
Once clients are in the door, they can be put into fee-based or other managed products, but a broker that can sell that service is as important to firms today as a superior stock jockey that could move new issues out the door was 10 years ago.
Of course, big books are built, not born. So while big books are certainly coveted, the proven ability to grow a book is equally in demand.
The gift for bringing assets through the door is particularly important for brokers just getting started. Once a book reaches a critical mass, growth becomes more organic and less sales-dependent. A 5% market gain for a $100-million book adds the same quantity of assets as a novice may generate in a year’s worth of pounding the pavement, cold-calling and otherwise beating the bushes for new clients.
Angus says ScotiaMcLeod tends to focus on asset accumulation rather than revenue, and he indicates that the firm wants to see its brokers adding $5 million-$8 million in assets a year.
A similar approach prevails at Vancouver’s Canaccord Capital Inc., where Bob Larose, vice president of private client services, says the firm concentrates on a new broker’s assets, not revenue. Canaccord expects new advisors to bring in $6 million in new assets a year for the first few years in the game.