Why Brokers Leave Their Companies



My dad was in the financial services business for thirty six years. He got out of the Air Force when he was twenty five and spent his entire career with what was eventually Smith Barney.  He started when the company was called Hornblower and Weeks. He went through all of the mergers and acquisitions. Shearson. Shearson Loeb Rhoades. Shearson Lehman Brothers. Shearson Lehman Hutton. Shearson American Express. Smith Barney Shearson. He was there through it all. Needless to say, most people don’t stay in the same industry for their entire careers, let alone the same company.

The financial services business is notorious for brokers and financial advisors moving from one firm to the other. One day you call your advisor and he isn’t there. He left for one of his firm’s competitors. I remember my dad telling me a story of two brokers that resigned with four simple written words. “We resign. Effective Immediately.” But why? What are the main reasons that financial advisors leave? I think there are three.

1.) Money: As Gordon Gekko would say “What’s worth doing is worth doing for money, wouldn’t you agree?”. Financial advisors are a notoriously greedy bunch. There is no greater motivation than the almighty dollar. The highest producing advisors at the major brokerage firms are paid sixty percent, at most, of the money that they bring in for the firm. Let’s take a look at a broker that makes $1,000,000 for the company. We’ll call him Bob.

$1,000,000 * .60 = $600,000


So, for “grossing” a million for the company, Bob gets a “payout” of $600,000. Keep in mind that this sixty percent payout is under the most generous circumstances. We’ll say for the sake of this example that forty percent goes for taxes.

600,000 * .40 =  240,000

600,000 – 240,000 = 360,000

Now Bob is down to $360,000 after taxes. Hard to make his yacht payments on that. Coincidentally, he gets a call from a headhunter who explains to him that a local competitor is willing to pay him 300% of his “trailing twelve months”. This means that they will pay him three times his annual gross production of one million dollars. Bob stands to get an up front payment of three million dollars!!! In return, he will have to continue to produce at the same level for his new employer over a number of years.

Bob has left the building!


2.) Independence: There are a lot of egos in the financial services business. None bigger, or fragile, than the people that manage the local branches. Most of these guys are just passing on the corporate line and have no vested interest in their employees other than what they can gain from them. Worse, still, is having to work for someone like that.

I read that one of the larger banks that owns a brokerage company requires financial advisors to make one referral per year to the bank in order to qualify for the top tier of compensation. So, you have a top notch salesman and relationship manager that is now required to meet a silly requirement such as referring a client looking for a mortgage. Sounds like a conflict to me. So much of independent thought. Now, granted, if you are a top producing broker, you are probably going to get something handed to you in order to meet such a requirement. And if you are really good, you will just steal it from someone else!

Brokerage firms have their own research departments, And guess what they produce? Yep, recommended lists of securities that advisors can recommend. Advisors are limited to recommending for their clients only what is approved by their employer. Getting a recommendation approved outside of the list is like getting a bill passed through

Eventually, a broker that desires creativity and responsibility is going to move on.

3.) Ownership: When you work for a big company, you don’t own anything. The firm claims to own the client relationships. Most firms allow you to create a group such as “The Bob Group” that gives the air of ownership without any of the privileges or rewards. If you disagree with the ownership question, you better have a good lawyer because you will be sued. The company decides how much you are going to get paid. Most brokerages have some type of transition programs for retiring brokers that pays into retirement. It’s just a job though, you don’t own anything.

For me, it was a combination of all of the above. I didn’t believe in the products that I was marketing. I didn’t feel like I was adding the type of value that I knew I could do without the shackles. No one was interested in my advancement as a professional. There was never any leadership that wasn’t either inept or unable to look any further than their own interest. More than anything, I wanted to have more responsibility. I didn’t want to “outsource the investment expertise”. I wanted to be the one held accountable for the investment results. And, of course, I didn’t own anything.