Broker-Dealer Dissatisfaction: Stories from the Front Lines of Recruiting

Broker-Dealer Dissatisfaction: Stories from the Front Lines of Recruiting


By: Charlie Latimer, Director of National Recruiting
Published August 2, 2017

A single occurrence or event may be random. Two gets your attention. Three? Three redirects your energy. This past week I had three conversations that resonated with a common theme: broker-dealers continue to operate under economic stress. As a result, service levels drop off, rash platform decisions are made in the name of the DOL (similar to that street shell game with the cups) and advisors bear an increasing burden from rising fees and expenses.

I have a great deal of empathy for advisors facing the consequences of economic strain at their BDs. If you put yourself in advisors’ shoes while listening to them vent, their psychology and ongoing frustrations come to life. That said, being at the right place at the right time with the solutions we provide at Private Advisor Group is a highly rewarding and satisfying experience. Here’s a recap of a few conversations I have had over the past week and the solutions PAG provided.

Advisor 1: My Broker-Dealer Is Increasing Fees

“My BD recently increased the fees (basis points) on the platform I’m using to build and rebalance portfolios. They threw in free trading, which may seem generous, but in absolute terms my overall fees increased substantially. They also readjusted the grid to their benefit. I’m also concerned about how they are handling IRAs in a brokerage environment. There’s an all-or-nothing approach, which doesn’t feel rational. When I was recruited to this firm, they positioned themselves as being independent. However, having seen other advisors depart recently, I know that as soon as I leave, other advisors will be calling my clients!”

The BD, which I will not name here, is one of the major regionals. (It’s easy to figure out if you happen to use them!) With Private Advisor Group, not only would those admin fees be totally eliminated, but when coupled with an increase in the advisor’s payout, the net result would be a positive outcome worth several hundred thousand dollars in the advisor’s favor. LPL is also coming out with a Mutual Fund Only (“MFO”) solution with a level fee structure, which will allow advisors to continue to offer mutual funds in IRA brokerage accounts despite the shifting regulatory landscape. Lastly, advisors are truly independent with PAG, always free to leave on their own accord for any reason, and without the fear of their clients being solicited!

Advisor 2: Compliance Is Taking Over My Firm

“The writing is on the wall at my BD. The compliance department is the tail wagging the dog—they’re literally running the firm. It’s becoming more and more challenging to get business done, and we’re only notified about changing compliance policies after the fact. For example, clients started getting letters for different things without our knowledge, which felt like we were being undermined. Further, small qualified plan accounts with C-shares were force converted to A-shares without any discussion. Our performance reports are also horrible. They emphasize the expenses and fees that the client is paying over portfolio composition, performance and rebalancing activity. It just leaves a negative impression.”

This BD is clearly facing pressure. They operate as one of several BD affiliates under a holding company, totally siloed from one another. No doubt, a situation that is ripe for consolidation. Is there a need for multiple compliance departments, service teams and everything else? At a time when size, scale and cost control are paramount, this model is destined for M&A or death. With costs rising faster than revenues, the squeeze at these BDs is right in the middle where the advisors are. They experience increasing fees, fewer services and benefits, decreasing service levels and reactive, abrupt compliance policies.

In contrast, PAG has a consistent and professionally-competent compliance track record. Rational application combined with robust communication gives advisors the confidence they need to navigate the regulatory landscape with ease. With PAG, this advisor’s payout would be increased while simultaneously eliminating admin fees, creating a win-win. The advisor would also have access to fully customizable, white-label-ready performance reporting at a low cost.

Advisor 3: I’m Paying Too Much for One-Size-Fits-All Solutions

“My BD takes 15 basis points off the top (before grid), which is supposed to pay for a number of resources that we don’t need or use: CFO and investment solutions, an in-house estate attorney, a paraplanner and performance reporting. There is no e-signature capability or technology integration, and our assets held directly (away) at SEI get a 5% oversight fee. They do a decent job with compliance, which is really the only thing we need help with, but we are forced to buy in to everything at a substantial cost. Overall, our confidence in the firm’s direction is under strain. They just don’t seem to offer a strategy that adequately addresses the rapidly changing world around us.”

Private Advisor Group eliminates unnecessary admin fees, providing a straightforward solution for compliance with transparent economics and making it easy to understand our value. Other services noted above, such as performance reporting, are available through LPL’s “Portfolio Manager” solution at a very low monthly cost compared to the third-party market. In addition, PAG’s in-house transition team and proprietary “Fast Track” system help ensure a rapid transition.
How Long Will You Wait to Switch?

While the pattern of BDs facing economic pressure is well established, it never ceases to amaze me how long advisors subject themselves to such ongoing frustrations. When advisors finally do poke their heads up to look around, it’s exhausting for them to compare offerings and economics across different BDs. Often, advisors simply grow discouraged and revert to what they know and understand. BDs, it would seem, intentionally make fees and payout grids unnecessarily complicated for this very reason.
Therein lies the industry’s opportunity: a safe harbor with transparent and easy to understand economics, backed by operational size and scale, where advisors can operate with total independence and, ultimately, find peace of mind. PAG is fortunate to have seized that opportunity early on, and we are now on the right side of history. Our focus remains on the future, making sure our advisors have the solutions they need, delivered through a world-class experience.