Wirehouse brokers often complain about being part of unwieldy company bureaucracies. They say their executives have a limited understanding of how to best serve retail investors. They also complain about unreasonable sales quotas and the pressure they face to push proprietary products.
But many don’t consider a jump to the independent space for one reason: simple inertia. Doing nothing for now seems to offer them greater safety. Any recruiter can testify to this.
The transition to a new broker-dealer and custodial platform can pose some near-term logistical hurdles, true, but these are usually not much of a deterrent for advisors considering a move. The far bigger issue is money. They simply believe the financial risks are too great. At the end of the day, the safety of a W-2 paycheck every two weeks is hard to give up.
But this mind set, while understandable, is remarkably shortsighted and can cost successful advisors millions in compensation over their careers. Inertia has quantifiable financial costs, too, and every wirehouse advisor should know what they are.
The Fundamental Question
Those seeking independence need to ask themselves a fundamental question: “Will at least 60 percent of my book of business come with me in the first year?” Sixty percent is what it will take just to break even, and you’ll need more than that to thrive.
Obviously, it’s impossible to know beforehand if you can get 60 percent. But take a good, hard look at your book and be honest and realistic about your clients. Will they follow you or won’t they? If they won’t, the financial benefit of going independent is limited. Actually, it’s worse than that -- you won’t survive.
But if you can confidently say that 60 percent of your clients will follow you to a new firm, then let’s take a look at some of the financial costs successful and experienced wirehouse advisors are incurring by choosing not to go independent.
The Real Costs Of Inertia
First, the “front-end” costs. Wirehouse advisors who generate $1 million in revenue typically capture about 45 percent of that before taxes. On the independent side, that same advisor can take home as much as 80 percent, a $350,000 difference per year.