How PWM really works (part 4): Misconceptions, how we invest, choosing a broker, and my AMA

thebrofessor's picture
Rank: The Pro | 27,488

Hey everyone, this is way overdue, but I wanted to give it a shot anyway. For my 4th and final blog on PWM, I wanted to go over several misconceptions about PWM the way I see it, how we invest clients' money, how to choose a broker, and conclude with an AMA.

I know they're a bit older, but check out the first 3 parts of my blog here:

Part 1: Past, Present, Future, and $$$
Part 2: Breaking In, Staying In, and Getting Out
Part 3: PB v. PWM, lifestyle, hours, day in the life

What I'll try to do is list out several of the misconceptions about advisors and then comment on each one of them. But first, a caveat. There are hundreds of thousands of people who are legally allowed to give financial advice, but it doesn't mean they're any good. If I had to guess, only about 10% of those people are any good (more on that later), and the rest...not so much.

I mention this because what I'm going to say here only applies to that top 10% of brokers, there are tons of bad apples out there, and I'll do my best to help you identify those people. Additionally, what I'm going to say probably will make the most sense to millionaires (7- low 8 figures, I don't have any UHNW clients, they're few and far between in my neck of the woods). These are people who have enough money to live comfortably, but aren't buying yachts and original Picassos, if you follow that.

PWM adds no value

Wow, this is the elephant in the room. I could easily write an entire blog on this but I don't want to beat a dead horse. Here's my take on this: PWM adds value for the right people. You can quibble all day long about beating the market in returns, but I'll tell you from experience that most people don't give a shit about beating the S&P500, and regardless of how rational you think that is, it's the truth. The easiest way I can explain what we do is like an endowment or a pension fund. We manage around a spending policy (after all, what's the point of having money if you can't enjoy it?!), which is different from absolute return. More on how we invest later, but the value add is that for people who are spending their money, that calls for a different type of investment management than someone who's running a deep value LS fund.

Additionally, the good PWM guys will address things like estate planning, tax planning, equity comp issues, liability planning, insurance planning, family governance issues (talking to kids about money), and other goals (education, wedding, retirement, etc.). Most people do not have the mental capacity to stay on top of all of those issues and hold down a full time job, so that's where a good broker comes in handy. This may not mean much for 22 year old 1st years in IB, but when you're 45, have 2 kids, are travelling 4 days a week and your down time is spent with wife and kids, the last thing you want to do is read 10 pounds of research on global markets, new stock option tax rulings, and the like. Furthermore, when you're retired, most people actually want to enjoy their life's earnings and not take on the full time job of managing them.

Finally, there's a tremendous psychological benefit for people. I'm telling you from experience, and argue with me all you want, but the wealthiest people in the world will often turn to chicken little if their investments take a bad turn. Good brokers will act like a coach to them during those bad times. For example, if you thought the recent 10% decline was the beginning of perennially lower equity markets and put all of your money in gold, grain, and in the mattress, you clearly don't have a good broker. Same thing with 2008, 2001, and so on and so on. The biggest enemy of the individual investor is himself, and we help temper those emotions by simply talking to clients during difficult times.

If you have a wealthy family, it's easy to make it in the business

This one is a bit tricky, because so much depends on circumstances. If your family is worth a lot (say >5mm), you may think you can simply get your dad and his golf buddies as clients and make it in the business, but it's not that simple. Your dad will have a hard time saying no, but I doubt he'll turn it over 100% to you. His friends?! Fuggedaboudit. They likely already have a broker they've worked with for decades, and what rational person would turn over millions to a 22 year old guy who's never seen a bear market?

I know 2 guys who had the golden ticket so to speak, 1 had 20mm from family, the other had 15mm. Over 5 years later, their AUM hasn't moved. Good advisors have to be focused on growth. Sure, that initial ticket is good on day 1, but going forward, you need to have a growth strategy in order to really make rain in this business.

Those commercials

Ahh, those commercials. PNC, Wells Fargo, Principal, they're all guilty. They show people opening ballet studios, buying classic Le Mans racers, vacationing in the Seychelles, and basically doing whatever they want. Here's the deal: no amount of financial planning can get you there. You need to have a high paying job and save well in order to get a big enough nest egg to do those things. Brokers are not magicians, we manage pools of assets, we don't create assets. If you want to achieve those things in life, save your bonuses, invest in stocks when you're in your early working years, and call on a PWM guy around age 40 when your situation gets a little more complicated.

How we invest money

First, we have a menu of best ideas. These range across all asset classes: equities, fixed, and alternatives and could be individual securities or money managers. The ingredients will be the same for just about every client, but the portfolios are all a little different. I said earlier we manage around a spending policy. What that means is that every client we have has spending needs from their portfolio, and it's our job to generate that income, preserve the principal amount (adjusted for inflation), and try to pick up a couple percentage points of return for long term growth. There are many ways of doing this so I won't go into the mechanics here, but you can clearly see that someone with $5mm who needs to spend $200k per year needs to have their money managed differently than someone who has $500k and simply wants to outperform the S&P500.

And the math makes sense too. If your portfolio is in 100% stocks and you're spending 5% per year from it and 2008 happens, you're withdrawing a greater percentage of the principal amount during that time, and therefore you may suffer a permanent impairment of capital. You're selling low to fund your lifestyle, so you can see why it's important to be diversified and therefore have a less volatile portfolio than the overall stock market. On the other side of that, if you're 100% bonds and living off the interest, you're getting no inflation protection or long term growth, so while the capital impairment isn't as immediate, it's a long term drag on performance, and eventually you'll be withdrawing greater and greater percentages of your net worth to fund your lifestyle, shrinking your overall nest egg.

How to choose a broker

First things first, brokercheck. Just google the guy's name with the phrase "brokercheck" afterwards and you'll find his record on FINRA. This will include years of experience, licenses, prior firms, etc. Things to look out for are disclosure events, but those are not a red flag always. FINRA is obligated to report every customer complaint, even if it was determined the broker was not at fault, so read through their report.

If they've gotten some complaints, ask about them. If they've moved firms a bunch, ask about that. Anyone who's been at Smith Barney their entire career will have tons and tons of firm names, even if they've never actually moved, but you won't know unless you ask.

Ok, now a list of stuff to ask, there's no right or wrong answer, your gut will be a good guide. If you have specific questions, ask them in the comments.

  1. Ask about their investment philosophy: are they value, growth, technician, what?
  2. Ask how they invest their own money: will they invest in the same things they're recommending for you? If not, why?
  3. Ask about their services: in my opinion, every good broker has a clearly articulated description of their service offering to clients
  4. Ask about their typical client: net worth, age, goals, etc.: will you be a top tier client or a bottom of the barrel person who gets no attention?
  5. Ask about succession planning: if they're similar in age to you, who takes over after they retire?
  6. How much does it cost? Why? What's the value I'm getting with this fee?

This should whet your appetites. And now, since I'm such a glutton for punishment, I'll make this my AMA. Only off limit questions are those that would reveal my identity, anything else is up for grabs, fire away!

Cheers,

Brofessor

Comments (86)

Nov 8, 2014

Thanks for doing this!

-- From what I understand, you're a young guy yourself. How do you get your older clients to trust you with their money?
-- What was your progression through the firm -- did you start out as Client Services Associate and work your way up or did do a rotational program (or simply move in from another area of finance)?
-- How do you feel about small, mom-and-pop run PWM shops vs. the bigger places like MS, UBS, and ML? I feel like people tend to gravitate to the latter for the name/to say that their money is managed by a BB, but I'm not sure how service compares across the spectrum.

Nov 9, 2014

I am young for my industry, that's for sure. I have older partners who bring some gravitas to the room when talking to wealthy people. I usually do most of the talking but just by having gray hair in the room you gain credibility.

My progression would give me away if I went into too much detail. I'll say that I entered the business mid financial crisis and was not a broker for a few years. Rotational programs aren't great intros to the business unless you're at a private bank.

Ah, clients who are prestige whores. We don't have those. Clients for the most part (the ones we deal with) don't get a hard on for brands like this forum does, the big 3 simply have more brokers so they have more clients.

On service, smaller ships could compete and on resources, they could use a clearing firm like Pershing which is who UBS uses so they'd in theory get the same resources. In reality, people feel comfortable with a familiar name. Not because they like saying they're a client, they just feel safer. The big 3 have been around forever so clients perceive less risk.

Let me know if any of that needs clarification.

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Nov 8, 2014

I hadn't thought about using a BB from a risk perspective, but I see your point. Thanks for your input!

Nov 8, 2014

Interesting post!

I have a question for you on how you recommend finding a broker. Of course you have the word of mouth but any other ways? I am asking since I've seen my parents lack of skill for managing their investment accounts, if only they would leave it to a professional they would be on a different planet of wealth (comes from real estate as of now).

Nov 9, 2014

If they're in any charitable groups, church groups, etc then there should be a broker in one of those groups. Also if their employer has a 401k there's probably a broker attached to that unless it's at vanguard or fidelity or some other discount house. Alternatively, they could ask their friends.

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Nov 8, 2014

I should have waited a couple of days eh? Great post man!

Nov 9, 2014

Hey thanks for doing this.

I interned in PWM and we had a rookie broker on our team. It seemed like by far the hardest part was building his book and getting clients. He'd be on the phone all day consistently getting shut down, maybe like one person would agree to a meeting. I know you mentioned in your previous posts that there's no clear way on how to build your business. What strategies have worked more quickly than others in the past, so that you don't get fired before it's too late?

I'm just imagining like even knowing wealthy people in your network who are family friends/family, having that conversation with them would be so awkward considering they're older and like you said probably have had a long standing relationship with a broker. What's worked in the past to get off the ground?

Nov 9, 2014

I take it the rookie is cold calling, which is a high volume low impact activity that I did and still do today. There are lots of outside resources to maximize the efficiency of cold calling but there are no shortcuts in this business. There are tons of ways to get business and none of them work exceptionally well, but what successful rookies do is just outwork the competition. That's another misconception, is that there is some secret thing that big hitters did early on, I don't buy it. I believe that success in this business is mostly hard work, selling skills, and luck. I don't think anyone on the Barron's top 100 list had their book handed to them.

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Nov 9, 2014

Interesting thread, thanks bro. Surprised $15mm would be a game changer for those guys. But at the same time, I'm also suprised they haven't been able to grow their AUM. Seems like the argument, "I put my money where my mouth is" would work really well in that situation.

Nov 9, 2014

think about it like this. you get 15mm, charge 2% wrap on it (similar to what this guy did), that's 300k in commissions or around 100k in income. assuming 0% net growth in assets, making 100k forever is comfortable for some people and is definitely a doable life in my part of the country. 300k in gross is enough to be #1 in your rookie class but not enough to change your life. this particular guy changed firms a couple times (big 3 penalize you for not producing a lot, and 300k is not considered a lot) and now I think he's either independent or at a retail bank.

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Nov 9, 2014

@thebrofessor

Great thread.

I just learned of a guy in his thirties who opened up a 100MM hedge fund after quitting his PWM gig. How common is it for brokers to open a fund at some point? I would think that there is some extended noncompete preventing you guys from taking clients, but this guy quit and opened up shop in the same year.

Nov 9, 2014

Extremely rare.

Nov 9, 2014
sfbroker:

Extremely rare.

This. It's almost unheard of

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Nov 9, 2014

How much AUM is typically needed to achieve stability in the biz? Such that, just starting out you clear enough to cover costs while turning a sizable profit. I know this is a "depends on the firm" type question. So just your thoughts in general. Either for an independent broker or one backed by a team/firm. Thanks brofessor

Nov 9, 2014

this definitely depends on the firm. the big 3 have a minimum production level of around 300k, which would mean take home pay of around 100k because payout is in the 30-35% neighborhood. in case you haven't read my other blogs, payout is what the broker's income is and is a % of production (aka commissions aka revenue), the reason for this is because wirehouses cover all overhead for you. you simply have to buy a few suits and generate some business. assume you have all managed business and your ROA is 1%, that means you need 30mm AUM. now at RayJay independent channel, payout is 85% but you get no help with overhead, and I'd guess that after expenses the take home is similar. again, I've never been independent and have no interest in it so I can't give you a great idea of what that looks like.

as far as achieving stability, it depends on your personal goals, lifestyle, and location. if you're a 500k producer (200k+ income) in Greenville, SC, that affords you a very different lifestyle from a 500k producer in an office on 5th Ave. Also, if you have a taste for travel, boating, the finer things (wine, watches, etc.) then 500k probably won't cut it. but as long as you're doing at least 3-400k in revenue, you're not at risk of being let go.

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Nov 9, 2014

How much AUM is typically needed to achieve stability in the biz? Such that, just starting out you clear enough to cover costs while turning a sizable profit. I know this is a "depends on the firm" type question. So just your thoughts in general. Either for an independent broker or one backed by a team/firm. Thanks brofessor

Nov 10, 2014

bromance

frontpaging this now, thanks man

WSO's COO (Chief Operating Orangutan) | My Linkedin

Nov 9, 2014

haha love the image. Dom Mizetti would be proud

Nov 11, 2014

I'm interested in your take on life insurance. In what situations do you recommend it, what types of policies, what $ amount (%age wise), what companies do you like and why, etc.

Thanks

Nov 9, 2014

life insurance makes sense and just depends on needs. for example, a 22 year old analyst is probably fine with his firm's $50k group policy that's complimentary (most BBs have this because the company gets a tax benefit). once you get kids, a mortgage, other obligations (basically people or things that depend on you financially), then you should get additional term coverage where the dollar amount and term match up with the obligation. so despite what your friends at nw mutual are telling you, do not buy life insurance when you're single and have no kids.

example, you get a 30 year term policy for a 30 year mortgage with a death benefit that matches up. you just had a newborn, you take out a 25 year term to match up with education expenses. you also get policies to bridge a gap in lifestyle while your savings aren't that great. for example, if your savings aren't enough for your spouse to live off, you may want to get a term policy that ends near retirement so that your spouse doesn't have to suffer financially after you die.

more specifically, if you have 2 young kids whose education will cost $500k each (UG + grad), a $1mm mortgage, and a non working spouse, you'd probably need at least $3mm in term insurance with a term matching up to your mortgage (since this is likely longer than college). I say $3mm because that leaves $1mm for the kids, $1mm for the mortgage, and $1mm for your spouse (assuming that's enough, this figure depends on a lot of factors). after the kids are out you could try to get a lower death benefit, or at the outset you could just buy different policies, but there's economies of scale with larger dollar amount (each dollar of coverage costs less the higher the death benefit gets).

other kinds of life insurance make sense (namely whole life) depending on the situation. if you have a substantial taxable estate (meaning over 10.68mm for a couple under today's law), life insurance policies are usually underwritten to replace what you have to pay in taxes. often times, these policies are expensive to the degree that people don't want to buy them, but if your assets are illiquid like in real estate, private company interests, etc., it may be impossible to foot the tax bill without some forced liquidation, so that's where life insurance comes into play.

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Nov 12, 2014

This is where I think the profession gets vastly undersold. The best advisers truly manage your entire financial well being and are far removed from simply taking a chunk of money and managing.

I'll be honest, you've gotten me to develop a much greater respect for PWM than I had previously. All the horror stories and anecdotes are just too many and you rarely get a look at the industry from someone who has made it work for them. A great contribution to this site.

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Nov 12, 2014

Great overview. On average how much does a $3mm policy like you outlined cost annually? Do these policies scale linearly in terms of pricing?

Nov 12, 2014

Great PWM posts brofessor. I would be interested in hearing your thoughts on the industry moving universally towards a fiduciary standard vs. suitability- do you see this happening and do you see this as positive or negative for the industry?

Nov 9, 2014

to put it bluntly, I think it's bullshit. I act like a fiduciary out of an ethical obligation, not a legal one. I think most good brokers would say the same thing, we put the clients' interests before our own not because we have to, but because it's the right thing to do and it's good business. all a universal standard would do is make annual compliance training longer and possibly cause some bad apples to leave the business.

I think it's a positive in theory, but I tend to have tunnel vision when it comes to the industry as a whole. I know what goes on in my practice, my firm, and what affects those, I tend to not care much about the rest. I do think it would get very complicated for institutional buyers, I remember when I had a hedge fund as a client the suitability & KYC rules were a PITA.

@"sfbroker" has more tenure than I do, perhaps he could share a different viewpoint.

Nov 9, 2014

The fiduciary standard is a great concept except for the fact that nobody actually wants it. The last thing the big firms want to do is to take on the responsibilty to monitor and regulate its army of brokers. The advisors don't want someone (FINRA) second guessing every decision that they make and the ciients certainly don't want the cost of all of this passed on to them to pay. Its a great theory but it will be near impossible to implement on a large scale. Won't happen during my career.

Nov 12, 2014

Nothing to add, great write-up as usual

Nov 12, 2014

@thebrofessor

Looks like WSO may turn into an unexpected prospect source for you given the fan club you've established. Nice hustle son.

One point I will disagree with you on is about the fiduciary standard. Right now, the waters are very murky about what a broker can do vs. a fiduciary can do. Frankly, if you are running your book like a fiduciary, you should welcome the fiduciary standard. Whether you want to believe it or not, there are still many brokers who care about YTB (yield to broker) more than anything else and many who have no idea about real wealth management techniques, but just like to push syndicate deals. The lines will become more clearly delineated over time between broker and fiduciary, as I mentioned here:

http://www.wallstreetoasis.com/forums/where-will-t...

Anyway, another good post from you.

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Nov 9, 2014

thanks DF, I'll continue to give zero about regulations. it seems to me that the more you run a practice that's morally sound, the less that regulations impact you.

on the prospect source, I don't want anyone on this forum as clients unless they're retired. experience tells me that these people are difficult to deal with and ironically very fee conscious.

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Nov 13, 2014

Would love to know which firm/team you are at

I'm Texas Made Texas Paid

Nov 13, 2014
texasmade10:

Would love to know which firm/team you are at

He's at JT Marlin in their small cap space.

Good posts as always bro.

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Nov 9, 2014

I'm a SVP at Stratton oakmont

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Nov 13, 2014

Good one. I can't imagine your team has multiple MD's if you have the kind of time to write all this up. Best of luck being a relationship manager, work on your golf swing.

I'm Texas Made Texas Paid

Nov 13, 2014

Yes sir

I'm Texas Made Texas Paid

Nov 13, 2014

Couldn't agree more. The vast majority of clients that need PWM don't need you to make them money (they already have it).. just preserve it. Any number of strategies/funds will do that.

The real value PWM is in 1. being the financial housekeeper (as you mention) assisting in everything from estate planning, to budgeting, lines of credit, transference of wealth, insurance, tax planning, etc... being their one stop shop for all financial matters.
2. being a "hand holder". Any idiot can put money in SPY or MALOX and make out okay. But being able to walk the client off the edge, and try to prevent the all to often 'sell low - buy high' pattern that seems to plauge retail investors.

Nov 9, 2014

Also I got a question via pm I'll answer out here. Basically the guy asked difference between big 3 and Indy firms, thinking that the pro with a firm like ms ML UBS is in the brand but the downside is you only have proprietary product, and with Indy shops you have better work life balance but less name recognition and street cred.

Couple things wrong with this. First, gone are the days where big firms only sold their branded investments. All of them have it but good brokers take advantage of open architecture. Better for the client and for the broker. I'd even argue that bigger firms have more open architecture because the fund companies put more effort to getting on their platforms, since they have the most aum and most brokers.

Also, work life balance depends on your specific practice, not on your firm. If you're a perennial grower or a rookie, it doesn't matter if you're at LPL or at Morgan Stanley private wealth, you'll be working a lot. On the other side of that, if you're 55 and sunsetting/coasting, doesn't matter either. Unlike every other part of finance, in PWM, the firm doesn't matter hardly at all.

Nov 13, 2014

Perhaps you have gone in depth on this matter on another forum - but what is your opinion on CFA vs CFP?

Nov 13, 2014

@thebrofessor - A quality lifting of the skirts. Insights much appreciated!

Nov 9, 2014

they don't allow for this anymore, the days of the boom boom room are gone. but I'm assuming you don't mean those skirts. thanks for your kind words.

Nov 13, 2014

Yes, interested in how much value a CFA/CFP (or even an MBA) would add, too!

Nov 13, 2014

Dear sir,

I have developed a test that tests a person's ability to learn new things. I tested it on a number of people --doctors, researchers and nurses mostly--and it correlates very well with position and score. Would financial companies be interested in using it? If so, how do I contact them?

Thank you so much.

Nov 14, 2014

Dear Brofessor, great post! im a 21 y/o in WM here in Canada. Rules/regulations are a Little different but concepts are very similar. (My age is a different story, I was lucky and got some special treatment to work while finishing 4th year uni. Story for another day though)

To piggy back and toss my no bullshit $0.02 here's my take PWM. I don't have any rep/cred here, still new, perhaps Brofessor could validate evreything I'm saying.

CFP vs. CFA in PWM - personally I think CFA is over kill for PWM. You're not really an analyst or trader in PWM your a relationship manager. Your average client doesn't know wtf a beta or alpha or finance lingo is, usually their worried if they have enough money for retirement and if something were to happen to them, would their family bene's have enough to live off of. Explaining how/why you chose this investment for client at CFA level....you'll lose them, just way over their head. It's good to have a good back ground on tax planning, Retirement planning, estate planning and insurance planning. These are the cornerstones of solid financial plan.

At the end of the day, designations will not determine your success in this business. You do. They may add some credibility and knowledge but it's not the be all end all.

I'm paraphrasing here but I found it quite interesting when you said there's not that much money in insurance for work put in. (Perhaps different here in Canada) another whole different story, but if you have some wealthy clients with estate liquidity issues (such as bro described with real estate example) you can get a pretty massive premium for a life insurance policy and a nice pay check for it also. (Obviously access situation and see if it's right for client)

Wires vs Indies - this may sound like shit but I'm giving it to you all raw (check the fail rate in the business it's like 95%) payout at wires is a lot lower but you get support, office paid for etc. they keep the lights on for you but you gotta bring in assets. If you don't, see YA later. You miss a hurdle at a wire, you're probably toast. From frequenting other forums, seems people say go to wires and fail out just to get the training. (Training programs are good, they teach you to be a selling machine) after you fail out go Indy and start your own shop. You only need 150 clients to do ok. 150 clients @ 500k minimum wrapped @ 1% is 750k of revenue. Less expenses and taxes your pulling ~250-300k year. (Not sure what's considered "good" here, but strive to be a million dollar producer and you shouldnt have any money issues in life)

Take what I say with a grain of salt, just adding my raw opinion on the business. I've been in it for 18 months now (Started when I was 20) so I'm no vet by any means. If I could have done one thing different I would wait until you finish school first. the work load is a lot to handle. I was to eager and prematurely ejaculated in WM but it is what it is now!

Lastly, I think it's a great business to get into, lot of older advisors retiring and not enough young talent to take over = lots of opportunity

Cheers,

Pee Hole Farts

Nov 14, 2014

*validate if you agree of course!

Nov 14, 2014

*validate if you agree of course!

Nov 14, 2014

With regards to MBA - depends. It could mean f*ck all or do you better. The way I look at it is if you have it will it hurt you? Probably won't hurt, but it doesn't mean it will help. You could have half the alphabet on your business card but can't close a sale you're useless to the firm. (A cost to the firm also) you could have nothing but your licenses and be the best in the biz.

You gotta be a people person in PWM more so than a quant. (At least in my honest opinion) There's no algorithm that will listen to grandma Alice's story about her grand kids soccer game or what type of sweater she knit this week on a portfolio review call.

Nov 9, 2014

@"Finner" @"cje2013" thanks for your questions, this depends on your clientele. let's say you work in Macon, GA or Lynchburg VA or some other place that has wealthy people but a different breed than say the CFO of a medical device company in Atlanta, if you follow that. it also depends on your desire to up your game as well as how your practice is structured.

I'm a fan of the CFA, but I'm biased. I passed Level 1, then got recruited onto my team so I'm taking a break but going back to it later on. it comes in handy with one of the hats I wear (US LCV PM, chew on that abbreviation haha), but not so much with my other daily duties. I will say that it gives me tremendous comfort when getting into the details of stuff with clients, it brings an analytical prowess that many CFPs or others simply don't possess. I realize the business is shifting to planning and we're huge advocates of that, but I think there's no excuse for lackadaisical investment management. @"PeeHoleFarts" I'll disagree on the alpha beta stuff. if you understand something incredibly well (like the math behind those things) it makes it easier to explain. people need examples, and I think a thorough understanding of complicated concepts plus good communication & selling skills is a benefit. so yes to the CFA but only if you're not a social klutz.

"CFP stands for can't f**king produce." - $1mm producer I talked to before entering the business. OK, jokes aside, CFP is a good curriculum, but it may lead rookies to analysis paralysis. it's almost scary the amount of stuff you go into and the rabbit holes you go down with the CFP. CFP also doesn't help selling skills, so while Merrill is forcing all rookies to get it (new rookies only), the jury is still out on how effective that will be. I tend to think of a rookie with a CFP like a brand new pharmacist who gives everyone shopping for tylenol an MRI, CT scan, EKG, and bone marrow sample. CFP will lead you to overcomplicate everything, which is good firepower if you're working with someone who has a complicated situation, but it can scare other people away. this is a critical point for rookies, because you don't have a lot of time to make it, so if you do a full workup on somebody that will lead to a long sales cycle (the bigger the decision, the longer the sales cycle), meaning you have a small probability of still being around when that person is finally ready to do something. I probably won't get it until our partner who has it retires, because it is important to show that you care (even though I already know everything on it as do most good brokers).

MBA is pointless, absolutely pointless. a MBA will not teach you how to sell, invest, or any of the other duties of a broker. it may however expose you to people who will be wealthy in the future, so there's that. it also may give you a good business vocabulary if you had a liberal arts background, so there's that. if I ever decided to get a MBA, it'd be because I was leaving the industry. otherwise, I'd have to either take 2 years off work to go to a top tier school or spend my nights away from friends & family getting a BS online degree.

@"PeeHoleFarts" I disagree about wires being harder than indy shops, it's hard period as a rookie. true, an indy shop may have more leeway of WHEN you get fired, but you still have to produce and produce quickly to make it. I haven't seen the allure of going indy, I love my firm and all of the resources that come with it. the last thing I want to do is have to pay a light bill or a plumber after a long day of client meetings.

and PeeHole, I agree with the people person v. quant, but other monkeys should note that this is an important LIFE skill, not PWM skill. in order to get ahead in this world, you have to be good at small talk and talking to people. you can be able to bang out a 3 statement model left handed upside down and blindfolded but if you can't carry a conversation over cocktails with your MD & a client, you'll never advance. beyond that, if you have no social skills, you have no friends. life without friends & family sucks, so don't put yourself in that situation.

Nov 13, 2014

Thanks for your always insightful replies Brofessor. Do you find that in the ultra high net worth pwm or PB that the role becomes less about tracking down clients in comparison to high net worth or average retail advisors?

Nov 9, 2014

no, UHNW which I define as >25mm (you could say 15 or 20 too, depending on locale) just is a different beast. as I mentioned before, not many of those people live in my part of the country, but colleagues of mine elsewhere in the country say it's simply a longer sales cycle, but the acquisition methods are relatively the same.

Nov 14, 2014

@"thebrofessor"

your posts are fantastic, I hope many a young prospective monkey in college will read this see what the PWM is really like and what it takes to make it, as opposed to watching Wolf of Wall Street before the first day of their NW mutual internship.

Nov 9, 2014

thanks bud. I hope something a little different, that NWM ceases their current internship program as it is now. it can range from helpful to poisonous, more often the latter.

another takeaway I want people to get is PWM is an either/or path. you either want to be a broker forever, or you don't. very very few 20 somethings know this, so it's often advisable to do something else beforehand and go back to the business later in life. PWM is not banking where you do it for 2 years and then go somewhere else. you don't become a broker and then move to a different part of the country, it's your last job if you do well.

Feb 15, 2017

@thebrofessor Thanks for your insight. Have you ever seen/heard of examples of an FA on an established team moving a few hours away to build out the book in a slightly different region (e.g. Southern NJ to Westchester County, NY/Long Island/Southern CT)? Would this be like starting from scratch, from a book-building perspective, and going back to long hours prospecting?

Nov 14, 2014

@"thebrofessor"

you are 100% right and IMO one of the more relevant but overlooked points that you mentioned is that you are doing the same job regardless of firm and if you are fundamentally unhappy, switching firms won't solve that.
I have seen a few guys float around blaming the previous firm for whatever misfortunes or dislikes when it was really just the nature of the job.
its even more prevalent when our former interns went to BB's and expected something different.

grass is always greener right...

Nov 14, 2014

Great posts @brofessr, perhaps I missed this or wasn't mentioned. Do you mind sharing how you got on your team? Was it out of training? Family money? Connections? Etc.... I'm not asking for personal stuff just the process and your story of course. I think there's a big difference in work/life balance if you choose to try to build your own vs. join team.

As you said, starting to build a book from scratch at a wire is very difficult. 3 ways to survive in PWM is inherit/ take over a book, buy a book, or just be a machine on the phone/ networking. Lot of the wires are encouraging teaming these days to help advisors stick and reduce turn over. That being said for someone thinking of entering the business without any family money or wealthy connections it's very very hard. Not saying it's impossible but VERY difficult.

Do you mind sharing your comp structure? (I apologize if this is too personal,, you don't have to share it) I'm genuinely curious as I'm looking at some succession planning with some seniors and want to get a feel of what the standard is.

For example: what's your cut on new money you bring in? 60/40? Your favour? What about existing clients, service etc? Also what happens to YOUR clients if you leave/get fired? Buy out? Or the curb?

I'm only brining this up as I've heard some crazy horror stories about rookies getting canned for BS from the big wires from other forums I frequent.

Nov 9, 2014

if I went into enough detail such that the answer was helpful, I'd give myself away. I'll do a 30000 foot answer and hopefully that helps, but these are very personal questions so I'm being intentionally vague.

my journey is something like this: I graduated from a non target with good grades (>3.5), humanities major, interned at a big firm by accident (chance meeting through a friend), worked at a commercial bank briefly, then became a non-broker employee at a PWM firm with a team. got noticed by my current team a few years into the business and was recruited onto that team. no family money, no connections, they just liked what they saw. I worked on a project for them under the radar and they liked the result.

as far as your 3 ways to make it, I'm doing both the first and the 3rd. the people who have everything given to them and never make a cold call or schedule a friday evening meeting with a potential client don't have an appreciation for the work this business takes.

can't share comp structure, shared this on a regional call at my firm because I spent a lot of time on it and it'd give me away. all I'll say is that it's important for teams to set the metrics (new new money, new money from existing people, servicing existing people, whatever) and pay based on that. if it's new new money, pay for the hardest part of the process.

it's easy to create a portfolio if the model is already in place, it's easy to do all of the advertising/marketing bullshit, it's easy to get people to open up if you're not a jerk, and it's easy to service relationships as long as you genuinely care. it's NOT easy to find wealthy people who will give you the time of day and it's NOT easy to get them to change what they're doing. THAT is where the value is and the person that's doing that should get the lion's share of the team's revenue.

what I'd do is leverage your current firm's resources, if it's a big firm there will be people at your home office who should have a good idea of how to do this. my firm does as well as the other 2 big ones, and that's how I went about it.

Nov 14, 2014

Again Brofessor, I dont mean to be the Thorne in your side! Just want to make good discussion.

For what it's worth, Bro mentioned he was a humanities major. A lot of the big swinging dicks at our office have arts degrees or physcology degree. I think this is a great example of PWM being a "people business" rather than analytics. I mean there's still a good chunk of analytics to be done but my point is, the "soft skills" are very important in this business. (At least in my opinion) what school you come from or any of that shit is irrelevant in PWM. If you're a good hard worker and good with people, genuinely care about them you will be found and can make a good living.

On a side note - I work with 2 mentors (none of which give me business, more so a career and life consulting) but when I was interviewing them (picking their brain at one of our first monthly lunches) I asked how they got into the business. Both of them said totally by accident! I find that there's some industry trend that people fall into this business totally by accident, there are so many more out there!

Great stuff Brofessor!

Nov 16, 2014

Brofessor what kind of prospecting and client acquisition methods do you use? How many times do you meet with someone before they invest. Do you stay in contact frequently with people who rejected investment?

Do you make all presentations to prospects or depending on situation is there different experts making pitches?

Nov 9, 2014

1. social prospecting, cold calling, occasional seminars/events
2. depends
3. yes
4. always me or someone on my team

Nov 17, 2014

Great series. Thanks!

Feb 19, 2015

Hello @"thebrofessor", I enjoyed reading your guide on PWM. It was very educational and I learned a lot from it. This summer, I will be starting a masters of finance program at either Vanderbilt or MIT. Coming in, I have internship experience with Wells Fargo Advisors (which I really enjoyed so it has further enforced my desire for PWM) and as an analyst at a hedge fund. What position coming out of my masters program would you recommend for someone that is looking to be doing what you do down the line?

Nov 9, 2014

just realized I never replied here. I'd try for institutional sales. that way, you get to polish your capital markets chops and also get better at selling without the pressure of bringing in business off the street.

Dec 2, 2015

@thebrofessor What are your thoughts on Wells Fargo Advisors? They're pretty big in my area.

Nov 9, 2014

fine shop, not as robust of an investment platform as morgan Merrill or UBS. wells is big in most places where they have a banking presence, the issue in my opinion is that they're owned by a bank and they're not a big profit center for Wells Fargo. I'm sure it's a fine place to have a career, but I've never been a broker there, so take what I say with a grain of salt.

Dec 2, 2015

Interesting. I know you really don't want to give people a blueprint on how to be a FA (obviously different for different people), but I was wondering how many hours did you work the first 2-3 years since I'm assuming you were 22-23 when you started? A friend of mine is in the ML TFA program and told me he's there 10-12hrs a day and does some work on the weekends too. I've heard that their PMD and TFA programs start them off with a salary and then cuts them off into more commission based.

Jun 5, 2018

Hi guys, bit late to the party but I just started my journey (month 1 in production) with all my licenses and crap at a big 3 as a financial adviser (planner what have you). I'm making calls and lists everyday basically so can confirm that, but recently sought out by a large PWM advisor within our firm (I'm in WM so anyone with a pulse/50-100k right now) (barrons 100) to be a "senior" CSA for them. Chatted over coffee, appeal for them is that I have my licenses, work hard, and ideally they would want to transition me over to the private wealth adviser (min 5-10M I think our firm is like 2M to get paid but unsure) as a partner working for the adviser/the team (3-5) years into it. That being said, I'm worried that everything just mentioned is just to get me into a client service job with little to no upside as I understand many FAs burn through sales associates and service associates with bait and switch tactics.

Pros for me, they are happy to let me prospect/share in revenue during the 2 years I'm a CSA. I'm currently fresh out of college and have informal help/partnerships with two advisers if I need it for larger clients. No network so the role would let me learn the field, investments (finance degree in college/I read but they both don't mean much) get a CFP etc and build so that I have ideally a team and a probably small book by the time I start as a PWM adviser.

Cons: CSA is a bit of a step back, not to say I'm above it and I don't want to enter the role for 2 year avoidance only to waste time and be back or worse than when I started. Current relationships at office are slightly important. I'm also worried about prospecting larger clients in PWM and if it is even more difficult than the program I'm currently in.

Open to any and all advice/comments about starting out or the situation. @thebrofessor

Jun 5, 2018

You should be literally diving on that offer.

Most Helpful
Nov 9, 2014

very hard to say. if this advisor is barrons 100, this could be a gold mine or a death knell. let me explain. most of those guys have $2bn under management. say they have a low ROA at 40bps, that's $8mm in production. at that level, they get 5 staff people paid for by the company, plus they likely have another team member or two they pay out of pocket.

if the guy or gal is in their 50's, sure they want a succession plan, but I'd look at the current team. do they have a junior person already? do they bring in business? or are they basically cold callers for the top dog and they make a reasonable, but not great living. (reasonable is 100k, great I'll say is over 250k).

I'm not saying that the experience will be bad, but I'm thinking of one advisor in particular out west who is also on that barrons list and doesn't share AT ALL. he'll bring in younger people, have them bring in accts that he keeps 30% of the revenue on and he gives them virtually no advancement opps. also, he doesn't share the big prospects in the slightest. this is not to say you shouldn't take it, just go in eyes wide open.

I know someone who started with him and now makes over $1mm a year (in his 40s), but he's the exception to the rule.

working for a top dog is an opportunity that doesn't come along hardly ever. here's what I'd do if I were you

  1. meet the FA, see if there's a fit philosophically
  2. see what the expectations would be from that FA
  3. ask if you've done well for a few years, what does growth within the team look like
  4. talk to the branch managers, ask him what past experiences of others like you have been

I would probably take it if I were in your shoes. worst case scenario, you have some great experience working with a top dog, can take nuggets of wisdom you wouldn't get otherwise to another adventure. maybe that's an MBA rebrand, or maybe you try the rookie FA thing again, albeit with more experience that time around. best case scenario, you bring in business, get respect, get bumped up within the team, and become a better version of yourself in the process

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Jun 5, 2018

This was a super insightful reply, definitely important and relevant for any aspiring FA, thank you.

Jun 5, 2018
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