The Truth About Wealth Management

Hello all!

Today, i’d like to reveal the truth about an industry that may have a lot of smoke in the mirrors to it and may not be as transparent as it is. I’d like to break down each section and as well break down the pros and cons to this industry.

First, let’s start off on what it is as a whole. Wealth management is nothing more than just being a stockbroker. Over the place years, being a stockbroker has gotten a bad name to it, and for that reason the industry began to call it self wealth management to seem more professional. As a broker, your job really is simple. Your job is to sell stocks, bonds, insurance, and other securities to clients. The truth also is if the securities sold lose or gain money for the client, you still get paid. Every broker makes money off commissions, that’s it. You literally kill what you eat. Some compensation structures may be a little different but we will get into that later.

So you want to be a broker? Great! You need to pass a series 7 exam and as well a state securities exam for example, NY state has the series 63. These exams legally allow you to buy and sell stocks for clients. Now, you need to find a firm to work in to be a broker. Here is where it begins to get a little tricky on what to pick. I am going to break down the exact firms and how they can be advantageous for brokers or the cons involved with it.

Before even getting into the firms, i’d like to get into the job in general, because the firms you work for actually can change the job. The bread and butter for brokers is a telephone. Literally, your job all day will be to cold call wealthy individuals who would be willing to trust you to invest their money. Some firms to do it differently by the means of meeting clients (events, dinners, networking meetings), but usually all clients are won over the phone. Once the clients trust you and like your business, most of your business after is done through word of mouth.

BB Firms

Pros: The pros here is the name and resources involved to be a broker. If you want to be a broker for a BB, all you have to do is win clients over that’s it. Once they are your clients, you can create a portfolio for them that is entailed with the CIO model of the firm. You literally would never have to worry about securities; your job would just be to win business and bring money into the firm. Another huge pro to working in a BB is the benefits. You can get vacation time, 401k, and health insurance which is great for a broker. As well, most of the BB firms give you a salary for the first 3 years to get your career going but eventually the salary ends eventually.

Cons: From working in a BB firm, the cons that I have seen was the compensation structure. The structure was fairly simple 1% for all AUM and the firm takes half of that. So if you had a book valued at 10mm, you would charge a 1% which would be 100k and the firm would take half leaving you with 50k. The biggest issue with this structure is that the big dogs really only made big money. In a way, your job never ends. If you want to keep making more you have to keep grinding out for business. This is a reason why people choose IBD, S&T, ER over PWM. You can make 80k-125k starting at one of these positions rather then making 50k in PWM. Another huge con in PWM is what is called in the industry as the deadline. You have 3 years to bring in around 25-30mm AUM. If you cannot, the firm fires you and keeps your book of business. Remember, most firms have a 10% success rate for their brokers.

Discount Brokerage Firms

Pros: The pros here is that most of the business comes to you. There is some prospecting and business acquiring but 75-85% of your clients are brought to you. The pros with resources are very similar to BBs. As well, most of these firms, the clients choose which securities to buy and sell. All you need to do is place orders. Only a small % requires you to invest their money with a structured plan.

Cons: The cons here is the compensation structure you receive. Most of these firms pay a salary and a very little % from commission. The sky is not the limit at these firms .

RIAs

Pros: The pros with these firms are that most of the firms that are created here are from elite brokers from elite BBs. They create these firms because they have the money under management to do so and as well have an institutional way to invest money. A huge pro in working in these firms is the fact of technical skills involved with investing. There is a lot more to be gained here.

Cons: The real con here is actually getting into one of these firms. These firms are basically the hedge fund for investors who do not have enough money to do so. Most likely, another con will probably be not as much benefits as you would get from BBs and discount brokerages.

Chop shops/Smaller Firms

Pros: The pros in these places are the compensation structures. Here, you make money on every buy or sell order for a client and you can charge up to 5% a trade. The pay outs here are incredible and there is a lot of money to be made. You literally do not even need a computer or an education to work a these firms. Just a phone and a will to make money.

Cons: Most of these shops have horrible reputations and most brokers lose tons of money for clients. As well, your job here is calling all day long across the country. You never meet your client and all you care about is making a quick buck. Also, you will gain no transferable skills to use but it also is dependent on the firm employed for.

Pros in the industry as a whole: The biggest pro is that this is probaly the easiest job to get on the street. As long as you can talk and you can pass a 7, most firms will hire you. You become your own boss. If you do not want to work for 3 weeks, that is fine, as long as you notify your clients. The sky is the limit. You will hear this a lot, but it’s the truth, you can make whatever you want as long you grind for it.

Cons: The biggest con is that you gain no real skills that can be transferred. If you have a 7 and 63, you can be able to work on a trading desk but again, the technical skills involved will not be there. Usually once your broker, you either stay as a broker or fail out. 90% of brokers fail, that is another huge con within the industry. If you have a guarantee of money coming in, then you will be golden but most don’t. Another con, the whole industry is commission only. It’s very hard to succeed on that lifestyle but can be manageable.

I know a lot of people look down on PWM but truth be told, I think those people just do not have the personability levels involved to be a broker. I hope I covered everything and if i missed anything, please let me know!