Brokerages face exodus as advisers get better deal in indie firms
The four biggest U.S. brokerage firms are facing an exodus of employees who are finding they can make more money and save on taxes by taking their clients and starting an independent firm before they retire.
Prices are rising for independent brokers because of demand from investors and other firms, while supply is low because advisers have made steady money through a five-year bull market and are waiting to sell.
Almost 100,000 brokers – or about one-third of the industry – are expected to reach retirement age over the next ten years, according to research firm Cerulli Associates, and the thoughts of many are turning to how to pay for it.
Big firms usually compensate departing brokers for the book of business they leave behind. Typically, brokerages pay between 0.85 and 1.4 times the annual revenue generated by the adviser, according to Nate Lenz, director of acquisitions for Raymond James Financial Services.
By contrast, surging demand at a time when few wealth management firms are for sale means that a business owner with a high portion of fee-based revenue can now sell for an average of two to 2.25 times annual revenue, Lenz said.
Merrill changed its policies to let retiring brokers stay on as senior consultants for a period of time they determine. That gives them a salary based on their last 12 month’s revenue while they deliver a smooth hand-off of their clients to a successor.
In May, Morgan Stanley started giving brokers pre-retirement bonuses of up to 50% of the adviser’s trailing twelve months’ revenue, delivered before the adviser retires, and separate from the account payout that brokers get, according to a source familiar with the deals.
Source: Reuters
