The compensation gap dividing elite independent advisors and top Wall Street brokers is closing, according to new research.
In an eight-page white paper, entitled "Compensation Parity: Why Clients, Independents and Brokers All Win," Jeff Spears, president and CEO of San Francisco-based Sanctuary Wealth Services, writes that falling Wall Street compensation and asset growth in the independent advisor channel is making it easier for brokers to make the move to independent RIA status.
Elite independent advisors are now earning close to the same compensation of top Wall Street brokers, an average of $900,000 annually, Spears said. "The elite corner office broker still has not yet left Wall Street," he said. "But we're now at a legitimate and defensible tipping point that we could see a lot of movement there."
With the compensation gap closing, Spears predicted that more traditional Wall Street brokers will jump to the independent advisor side. "As some of their friends have already left over the years to become independent, they're starting to see that they would be able to make as much if not more compensation," he said.
Spears interviewed 60 top brokers with more than $2 million in revenue and 25 elite registered investment advisors (RIAs) with more than $500 million in assets under management.
Over the past three to five years, more assets have left Wall Street for independent advisories, according to the study. From 2007 to 2010, wirehouse assets fell 7%, while independent advisor assets climbed 21%. Meanwhile, self-directed assets at online brokerages, such as Charles Schwab, also grew.
"The numbers underscore the ongoing loss of confidence in Wall Street, along with the validation of the independent advisor model," Spears said.
One of the reasons broker compensation is going down is that clients, since the 2008 financial collapse, are shunning high-margin products that used to pay brokers extremely well, he said.
"For clients, the financial crisis exposed Wall Street's major flaws-products and advice that didn't work and business practices that put client interests second," Spears said. "In the process, however, many clients have discovered an appealing alternative: independent advisors who offer responsive service."