Why Are Brokers Fleeing Wall Street?

“The Financial World According to Inya” Column,
by Inya Ivkovic, MA

I ran into a long-time friend from my early broker days yesterday. In between window shopping and gossiping — well, gossiping mostly, about our husbands — we got to talk about a huge decision my friend was about to make, which five minutes before she told me I would have thought to be a scientific impossibility. In a nutshell, my friend had decided to quit her job as a broker servicing retail clients after a very successful career of over 20 years. Like most women in the industry do, she started as a lowly sales assistant, then worked as an apprentice to a more experienced colleague, then made a leap of faith by weaning herself off of a firm payroll and going it alone, all along dealing with the “boys’ club” kind of prejudice and clients whose favorite line seemed to be, “Can I talk to your boss now, honey?” Even after making it through all that and becoming successful and respected in her firm and on the Street, she still decided to quit; which begs the question: why?

The road to the point where my friend is at now is not what bothers her. Why would it? After all, she is a high six-figure earner who was always smart with her money and who knew how to balance her work and her life, literally ending up having it all. But what bothers her is the road ahead from this good place. Here is how she justified her decision not to take it.

According to a securities industry tracking service, between November 2008 and February 2010, approximately 1,500 brokers left their jobs at big financial institutions. It does not seem like much of a number, and certainly not enough to base one’s decision to abandon a successful career choice. But it does point to an emerging trend where advisers no longer feel they can service their clients in a holistic kind of way, because the industry might be going in a direction they don’t like.

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First on the list of advisers’ complaints was that the traditional brokerage model appears to be broken. The model revolves around commissions and fees and the concept of “the more client trades processed, the better.” Such a concept very often led to a number of glaring conflicts of interest, one of them involving pushing advisers towards peddling in-house products regardless of whether those fit their clients’ investment objectives or not. Granted, the alternative of being a salaried broker is not that appealing to many, although a switch to asset-based compensation that would refocus brokers and firms on their clients is a viable option, and the only one poorly explored by big institutions. In fact, most don’t even entertain it as an academic pursuit. According to my friend, she tried to convince her bosses to let her switch gears towards asset-based compensation. After a five-second deliberation, they offered her a resounding, “No.” That “no” was her first foot (and a half) out the door.

I asked her about going independent or working for a small shop instead. But she said that starting out from the bottom again is not something for which she has the energy halfway through her life. She also gave me a quick tally of the price of freedom to stay in the business as an independent.

First, her hours would have to go back up to 60-70 a week. While that was something she was ready to do early in her career, she is not ready to do it now. I have to say, my friend was one of the few who actually had a life and who was a successful investment adviser to retail clients at the same time. That said, even with an investment of that many work hours, she would still make significantly less money than if she were to stay with the large firm. In other words, why bother? That was the other half of the foot on my friend’s way out of the industry.

I think my friend has made both a morally and personally good decision. I know she has fought this great conflict of interest battle valiantly for her clients for as long as she could, and I do not think she has either lost or thrown her towel in. She has joined agrowing number of “defectors,” which, if their numbers keep on growing, will eventually force big financial institutions to get the message and do what is right…for all stakeholders, not just themselves.