Pressure? Who cares

2001 Brokerage Report Card
Freedom from company pressure
 
 	1998	1999	2000	2001
National Bank Financial	9.5	9.4	9.4	9.8
Raymond James*	9.8	9.8	9.7	9.8
Canaccord Capital	9.5	9.3	9.7	9.7
TD Evergreen	9.6	9.6	9.5	9.7
CIBC Wood Gundy	9.5	9.8	9.3	9.5
BMO Nesbitt Burns	9.0	9.4	9.1	9.3
Merrill Lynch Canada	9.6	8.1	8.9	9.2
ScotiaMcLeod	9.3	9.2	9.2	9.1
RBC Dominion Securities	9.1	9.4	9.1	9.0
Edward Jones	9.8	9.8	9.3	8.9
 
Average	9.5	9.4	9.3	9.4
*Raymond James acquired Goepel McDermid Inc. in autumn, 2000
SOURCE: INVESTMENT EXECUTIVE RESEARCH

Retail brokers often cast themselves as the cowboys of the financial industry — fierce freedom-lovers, doggedly self-reliant, answering only to themselves and to their clients. But like the Wild West itself, the image is more fantasy than reality.

Brokers may brag about their imagined freedom and claim to covet it above all else — the average rating in this year’s Brokerage Report Card was 9.4, up from last year’s 9.3 and the same as in 1999. But the reality is brokers are increasingly under the thumb of their firms. Moreover, many seem to like it that way.

The cold-call cowboys of yore are little more than a legend these days — if they were ever anything more than office braggarts. The fact is: these days most brokers have their firms hovering over their shoulders throughout the entire client experience, from prospecting to trading.

Referrals come from the parent bank’s branch system. They are doled out as rewards for company loyalty and to ensure future obedience. The sales pitch is company- approved and company-funded. More and more, proprietary merchandise is part of the products that are offered to clients. Through it all, brokers continue to insist they are independent.

While brokers still may claim they must live free or die, the reality is many seem to love the discipline in spite of themselves. Just look at the firms that ranked highest in the survey this year — Edward Jones and Merrill Lynch Canada Inc., both large U.S.-based firms renowned for packaging and delivering a rigorously stage-managed offering for investors from coast to coast.

Edward Jones is upfront about its conservative, blue-chip and uniform investment approach. Jones brokers concede they are not working for the Street’s most permissive shop. But they insist they have enough freedom to get the job done for their clients. “There are many preferred stocks and issues, but I don’t feel constrained,” says a Toronto-based Jones broker.

“We have to be approved, but I’m very content, and I definitely have enough product to work with,” insists another.

Almost to a man, Jones brokers argue that although their product selection may be constrained, they can, and do, operate strictly in their clients’ best interests. That is, as long as the client doesn’t want to take on more risk than the firm allows.

The message at Merrill may be different than it is at Jones, but increasing uniformity is the method there, too. Some Merrill brokers say the firm has a clear idea of where it’s going and brokers are enticed to toe the line. One B.C.-based broker cites the introduction of the Merrill method as one of the worst aspects of the firm. “The firm is a lot different from what it was when it was Midland [Walwyn Capital Inc.],” says the broker. “The Merrill people have higher compliance standards and there is more focus on what they are trying to accomplish. There are incentives to do that as well.”

At least at Jones the more restrictive approach is in service of the firm’s genuine investment philosophy, one it believes will pay off for its clients in the long term.

The erosion of freedom at other firms has come with increased emphasis on proprietary products. Jones may have definite, incontrovertible ideas about how to invest, but it doesn’t have a corporate finance arm to feed. Other firms’ brokers are not so lucky.

The push for proprietary products not only compromises the client’s well-being, but it also helps tie brokers and their clients to the firm.

But brokers at ScotiaMcLeod Inc. admit that its proprietary products are getting a heavy push. At RBC Dominion Securities Inc., it’s the Royal Bank mutual funds that are being hyped to the sales force. One DS broker in British Columbia says there’s “no freedom,” particularly if you are a rookie. A BMO Nesbitt Burns Inc. broker on the East Coast says with a straight face that with the in-house products, “you get a higher trailer and they are promoted more, but there is no direct pressure.”

Apparently, Nesbitt brokers are buying this line from coast to coast. Another Nesbitt broker on the Prairies says, “Here, you have incentive, not pressure, unlike at places such as Merrill Lynch or DS, where it’s ‘my way or the highway’.”

If a higher payout and more aggressive marketing isn’t pressure, it’s not clear what would count as pressure for this broker. But he is not alone. Brokers at many firms across the country seem to be prepared to accept a fate of more uniformity and less autonomy, rationalizing their own submission as a simple necessity of the business these days. “The bigger the firm gets, the more control [it has] to take,” says another Nesbitt broker in Atlantic Canada. “[It] can’t have salespeople running off on their own.”

That freedom is exactly the experience some brokers still hope to have in this business. And it still exists. If there’s any company that still believes in the principles of freedom and individual responsibility it’s our third-place firm, and the top-rated Canadian-grown firm, Vancouver’s Canaccord Capital Corp.

“We never have anything dropped on our desks, and I’ve never received a call from corporate finance saying we have to move a certain product,” boasts a West Coast-based Canaccord broker. “We’re never forced to sell anything. Part of the reason I’m here is I’m allowed to think independently and give decent service.”

A Canaccord broker in Toronto says he has much more freedom at Canaccord than at his previous firm, one of the uptight U.S.-based shops. “[There’s] not as much proprietary product. They focus on what the client needs, not on what the firm needs, and compensation is also better than at other firms.”

This sort of commitment to independence may not be everyone’s cup of tea in this age of wealth management and relationship building. “[Independence] really attracts some people, and it makes some people a bit nervous,” says a B.C. Canaccord broker.

But if brokers at the other big firms are going to get nervous about autonomy, they should admit to themselves and, ultimately, their clients that they are driven less by freedom and courage to do the right thing and more by the whims of their Bay Street overlords.