2001 Brokerage Report Card

Changing firms
 
 

2000

2001

Raymond James*

6.7

7.4

Edward Jones

5.9

6.6

CIBC Wood Gundy

5.0

6.4

National Bank

6.3

6.1

BMO Nesbitt Burns

5.7

5.5

ScotiaMcLeod

7.2

4.7

Canaccord

7.2

4.5

TD Evergreen

5.2

4.5

Merrill Lynch

5.3

3.9

RBC DS

5.8

2.5
 

Average

6.1

5.2

* The former Goepel McDermid Inc.

SOURCE: INVESTMENT EXECUTIVE RESEARCH

One of the biggest events in an advisor’s career is moving a book of business from one brokerage to another, and this year’s Brokerage Report Card suggests such a feat is becoming even harder.

Last year, when advisors at major brokerages were surveyed about the difficulty involved in moving from one firm to another, the average worked out to 6.1 (the lower the number, the harder it is to move). This year, however, that number dipped to 5.2, suggesting that advisors employed by brokerage houses are finding it even harder to make the switch. It’s the lowest average mark overall on the Brokerage Report Card.

It’s no wonder. Advisors have always found changing companies an exercise in frustration, a complaint Investment Executive researchers heard from more than one broker.

“I moved once and I’ll never do it again,” says an RBC Dominion Securities Inc. advisor in Barrie, Ont. “Too much paperwork and I lost a whole whack of clients.”

According to a Calgary-based broker at BMO Nesbitt Burns Inc. “If I leave the firm, I’m getting out of the industry.”

Most brokers who have moved say they’ll never do it again, calling a move a “once in a career” event.

“There are too many surprises,” says a Raymond James Ltd. broker based in Northern Ontario. “It’s hard to transfer a mutual fund account.”

There are a great many hassles. Advisors are not allowed to inform their clients ahead of time that they’re moving, and some advisors have to deal with non-compete clauses in their contracts. As well, firms often have a strategy they put into action when an advisor leaves, unleashing young, hungry advisors on former clients. Add to that an overwhelming amount of paperwork and often foot-dragging by the firms, and the pros of a move have to be carefully weighed against the cons.

But if you’re going to do it, do it soon. There are some trends bubbling through the industry that may make it even harder to make a move. For one, asset accumulation is slowing as the “discovery” of mutual funds by mainstream investors has largely played itself out. Considering it takes up to $100,000 to train a broker, firms are prepared to do whatever they can to keep an advisor.

In the case of Merrill Lynch Canada Inc., that means ripping a page out of the dot.com notebook and offering brokers stock options in the firm.

That company policy is a brilliant one from an employee-retention perspective. Brokers are tied even more tightly to their company because they don’t want to give up the value in their stock options. According to a Merrill broker in Penticton, B.C., “There is a financial incentive, for sure — you lose your stock options. That would seem to be a major hassle.”

How much of an incentive those options will actually provide depends on the firm’s performance and the price of its stock. With markets bottoming out, perhaps that’s one incentive that may not have the power it once had. It’s a fact that the U.S. financial press has been awash in reports of cutbacks at the major brokerages in the U.S., with the effect of making their stocks a bit more risky.

On the other hand, with the axe hanging that low, a broker thinking about moving may not find anywhere to go and will be forced to put the idea on the back burner. As others in the financial services industry have discovered, when the markets are as bad as they are now, it’s a time to hunker down and wait it out — wherever you’re working.

Recent growth in fee-based asset programs may also result in tying brokers closer to their firms. If an advisor has a large proportion of his or her high net-worth clients settled snugly into a proprietary wrap program, for which intensive client reporting channels have been carefully set up, they may think twice about moving.

Another trend that makes it difficult to move is the increasing number of client referrals that come to brokers through the banks at the bank-owned firms. If the client is primarily a customer of the bank and came to the broker through that channel (rather than through prospecting on the part of the broker), the broker may be reluctant to move, realizing he could lose a big part of his book if he does.

The growth of new business models such as Edward Jones’ “community franchises” may also make it harder to move companies. According to one Edward Jones broker based in Newmarket, Ont., “They own the clients.” This makes a move more than just a move; it means starting over with an empty book. That would be an unlikely proposition for anyone who has been in the business for any length of time.

No wonder, then, that the question of moving firms received the lowest score overall. “If I wanted to go to a different firm, it’s really not that easy. I’d give that a three,” says an DS broker in Ottawa.

Aside from the negative reasons for not moving, perhaps there is something more. Could it be that some brokers are actually happy working where they are?

It’s not all doom and gloom, according to one CIBC Wood Gundy broker in Charlottetown.”It would be easy to move, but I like it where I am,” he says.