brokers

From the Desk of Jim Eccleston at Eccleston Law Offices:

Wirehouses are shifting away from a commission-based brokerage model to a fee-based business model. Over the past decade, the number of fee-only and fee based advisers has increased to 84% at the wirehouses, compared with about 57% for the rest of the brokerage industry.

The challenge is to find an appropriate price for advice which is competitive with what others in the industry are charging. Some advisors charge between 0.75% and 1% of assets under management as an annual fee rather than drawing commissions.  In order to offset the decline in commission, advisers undertaking the move must be prepared to generate revenue from different sources or to make the shift incrementally.

The fee-based account gives advisers a more stable source of revenue that, over time, allows them to market and to focus on existing clients.

From the Desk of Jim Eccleston at Eccleston Law Offices:

Wirehouses are recruiting top advisors from the bank channel. As the broker-dealer industry becomes more competitive, even big firms are becoming much more flexible and open in their recruitment in order to ensure success and meet their aggressive recruiting goals.

The effort historically has been risky. Most bank advisers build their businesses through company referrals rather than prospecting, so clients often are less willing to transfer their assets. Moreover, bank advisers pose legal risk. While most brokerage firms have signed the Protocol for Broker Recruiting, banks have shied away.

Bank of America Merrill Lynch is a member of the protocol, for example, but that does not apply to advisers in its bank channel, Merrill Edge. J.P. Morgan Securities signed on earlier this year, but clarified that it was limited only to the few hundred advisers in its private client group and excluded the JPMorgan Chase Private Bank.

In addition, bank advisors face tighter restrictions on what client information can be taken. Morgan Stanley was sued earlier this year when it recruited a trust adviser from PNC Bank. PNC accused the firm of helping the adviser misappropriate trade secrets. Bank advisers have employment contracts that have non-solicits or non-competes, or event sometimes a garden leave provision of 30, 60, or 90 days. Competent legal counsel, such as Eccleston Law, should be retained to review and consult.

Another concern is that many bank advisers are working with mass- affluent clients with less than $250,000 in assets, while most wirehouse accounts require investible assets of greater than $250,000 for the adviser to receive a payout. Still, wirehouse managers are willing to take on the risk, especially if a successful bank hire can provide a connection to a big-name client.

The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.