News & Insights

Bye-Bye, Fat Broker Signing Bonuses

by Elliot Weissbluth on June 05, 2017

One of Wall Street’s most storied traditions—the fat signing bonus—is on the chopping block.

The New York Post reports that Merrill Lynch, Morgan Stanley and UBS are “calling an abrupt end — for now — to hiring raids and the seven-figure upfront signing bonuses they once paid to poach each other’s talent.” According to the article, wirehouses under financial pressure due to the adoption of low-cost robo advisors and passive investments can ill afford to dole out multimillion dollar “loans” to lure top talent from their competitors.

This is a big deal in an industry where big bonuses and commissions are a staple of the corporate culture. And it’s a huge step toward a financial system that better serves investors.

This development is indicative of a larger shift away from the conflicted, commissions-based business model that wirehouses have long relied upon to generate most of their revenue. It’s part of a transformative shift toward demanding accountability, and bringing trust back to an industry that lost it during the financial crisis and Great Recession.

Investors are increasingly looking to financial advisors to provide thoughtful guidance on all aspects of their financial wellness, as well as peace of mind during periods of crisis. And they’re rejecting salesmen who earn commissions from selling them products—which is why Wall Street’s wirehouse model is starting to fall apart. It’s also why advisors who adopt a fiduciary approach—as in, who put their clients’ best interests ahead of their own personal gains—are positioned to grow. Putting clients first isn’t just good for our business. It’s the right way to treat the people we care about.

The numbers don’t lie: the independent advisory channel is thriving. According to data from Cerulli Associates, total assets in the independent RIA(registered investment advisor)  channel grew by 6.2% in 2015 from the year before, faster than any other advisor channel—while the total assets of the wirehouse channel shrunk by 1.9% over the same period. Cerulli also projects that independent RIAs and hybrid RIAs combined will increase their market share to 28% in 2020 from 23% in 2015.

The writing is on the wall: brokers, enjoy your signing bonuses while you can. They may soon be a thing of the past.

This post originally appeared on LinkedIn.

# Accountability Commissions Signing bonuses Talent Wirehouse

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