Are Brokers Being Punished for Not Pushing Enough Product?
By Ric EdelmanYes, at one firm at least
You'd expect a financial firm to fire an advisor for not serving the best interests of his or her clients. Merrill Lynch is also demoting those who don't bring in enough revenue, according to Financial Advisor magazine.
The media report says that advisors who have at least 10 years of experience but don't bring in at least $250,000 annually in commissions and fees won't be allowed to be advisors anymore — continuing a trend that many large brokerages have been following for years. The firm says the move "aligns advisors' interests with those of our clients and shareholders," according to the magazine.
It's obvious how Merrill's move might help shareholders: More revenue produces more profit. But it's harder to see the value for clients. The only way brokers generate commissions is by selling investment products. That means the brokers must constantly pitch new products to their clients. Is that compatible with the clients' financial goals?
Merrill's policy might explain, in part, why thousands of brokers are leaving big brokerage firms to join smaller independent firms and why many of their clients are following them. At the end of 2008, big brokerages managed 48% of individual investors' assets, while independent firms managed 19%, according to Cerulli & Associates. But the research firm projects that the big firms' market share will drop to 41% by 2012 while independents' share will rise to 23%.
Could it be that the prediction I offered in my second book, The New Rules of Money — that big brokerage firms are dinosaurs and will become extinct — might be coming true?