2001 Brokerage Report Card

How advisors rate payout
 

2000

2001

TD Evergreen

9.1

9.3

Canaccord

8.4

8.8

Raymond James*

8.5

8.7

Merrill Lynch

7.4

8.3

Edward Jones

7.7

8.1

National Bank

8.1

7.5

ScotiaMcLeod

7.5

7.2

BMO Nesbitt Burns

6.7

7.0

CIBC Wood Gundy

7.2

7.0

RBC DS

6.8

6.8

*Formerly Goepel McDermid Inc.

SOURCE: INVESTMENT EXECUTIVE RESEARCH

Payout is perpetually disputed turf. It can never be high enough for brokers, and management is always looking for ways to inch it lower. In the midst of the tug of war, strategies are shaped, morale is boosted and destroyed and firms can be created or lost. When it comes to brokers’ payouts, the only thing that’s constant is the struggle between the sales force and the firm.

So it hardly comes as a surprise to hear that payout continues to be a bugaboo for respondents to this year’s Brokerage Report Card. The average ranking was a low 7.9, slightly up from last year’s 7.7. Yet, for most brokers it’s about more than just money.

Brokers say payout has fallen every year since the IE survey began. “It has been squeezed over the years,” says one Ontario-based broker from CIBC Wood Gundy. Similar gripes are heard at ScotiaMcLeod Inc., and indeed across much of the Street.

At Edward Jones, the complaint is not that the payouts are shrinking, just that they are smaller to start with compared with rival firms. Many Jones brokers assure themselves, and their detractors, that with assorted bonuses and the firm’s profit-sharing plans, their overall compensation falls in line with the competition. “Our percentage has been misinterpreted before,” says a Jones loyalist in Ontario. “It seems low, but when you take into account the profit sharing, it balances out.”

While you find brokers who complain about their payouts at almost every firm, the crew at RBC Dominion Securities Inc. seems to be the most irritated this year. “I’m always thinking of it compared to what it used to be. How’s that for an answer?” sneers a DS rep from Ontario.

“Compared to the rest of the Street, it’s going down and down every year,” says another DS rep in Toronto, blaming the pressure on the added layers of management, whose pay is coming out of the pockets of the front-line brokers. The sense that brokers are suffering in service of an ever-swelling corporate bureaucracy has been exacerbated as the retail brokers at some of the bank-owned firms have been severed from the wholesale sides of their firms and repackaged into large retail investment divisions.

RBC’s Royal Investment Services is perhaps the prototype of this model — rolling together retail brokers with discount brokers, mutual funds, insurance and global private banking, among other retail investment services. Brokers used to grumble about paying the freight for the investment bankers, but at least those guys could be counted on to come up with big kills of their own, and the management structure was about as flat as possible. Now brokers sense they are just feeding a large, unappreciative machine. “It’s bad for morale, yeah, but that’s not the half of it,” sighs a disgruntled DS broker in Ontario.

And it’s not just the pure payout itself that remains under pressure. It’s brokers’ total compensation. It seems that the firms continue to find ways to whittle away the brokers’ share, whether it’s by dropping the payout directly or by slyly downloading costs to the brokers.

“Most firms figured out a few years ago that it’s hard to cut payouts, so they off-loaded other costs onto the brokers,” says a broker with BMO Nesbitt Burns Inc. on the Prairies. “For example, brokers have to pay large bonuses to sales assistants and the base salary from the firm is not high enough to keep the best ones there. As well, they have chargebacks on minimum ticket sizes.”

The only restraint on firms from pushing payouts to zero is the aggressive competition between firms for quality talent, particularly for top brokers. Firms are forever on the lookout for top-performing brokers, and are willing to pay for them.

During the full raging of the bull market, firms all had one strategy — more brokers. When markets were going up, it was easy enough for firms to add brokers indiscriminately, confident that there would almost certainly be a marginal return for each warm body brought aboard. But as markets have turned and investors have become more cautious, firms have had to become more strategic with their sales forces.

To many firms this has meant some form of market and sales force segmentation. Firms can no longer afford any free riders, and smaller producers are typically the first to go. “The payout is better than most,” says a broker with Canaccord Capital Corp. in Toronto. But, he warns, it is getting tough on the lesser performers and rookies. “They’ve got this new grid now, though, which is going to affect some producers. They are cutting payout for people who have book values of $200,000 or less.”

Another Canaccord broker, based in B.C., attributes the payout structure to the poor market conditions. “And that’s pretty crummy,” he notes.

Brokers are typically spared the cost-cutting fever that grips investment dealers in tough times since they are one of the few groups within firms that still manage to produce profits. While the recruiting may slow down during market turbulence, firms are still eager to retain the performing brokers, and dealers get more focused on strategically deploying their sales forces. Typically, payout is one of the primary tools to accomplish both objectives.

To be fair to the firms, broker complaints about payout seem to be almost unavoidable. Even brokers who don’t have much to complain about yet are anticipating future downward pressure on their payouts. Take Raymond James Ltd., the former Goepel McDermid Inc., for example.

Takeovers typically treat brokers well — sometimes they receive a payout boost to go along with one-time retention payoffs, and a premium on any stock they held in their former firm. But one Western broker at Raymond James is expecting the worst. “The new American management is overpaid. Eventually, they will come after the payouts.”

Overall, brokers seem to have resigned themselves to the relentless pressure on payouts.

“The payouts are low, but they cover other costs,” offers one BMO Nesbitt broker from Western Canada. “It’s no good, but what can you do about it?” laments another from the Prairies.

Even brokers are coming to learn that a high payout is no guarantee of happiness. TD Evergreen Investment Services Inc. ranked lowest overall in our survey, despite boasting the highest payout and the top score for payout of any firm.