FAs/PWM Guys - Can We Get The Real Scoop? THX

DurbanDiMangus's picture
Rank: Gorilla | 708

So I know many HF/PE guys, mid to late 20s, who at some point during college interned with a retail broker/financial advisor ("FA")/private wealth manager. You know, those resume padding internships (many unpaid) where you are an FA's gopher for a summer "learning about the stock market"!

Despite the job being a bit Short intellectual stimuli (and uber Long cold-calling), people have rather fond memories of their FA boss. "He was very wealthy, super sociable, took vacation when he wanted...." A lingering curiosity sometimes surfaces, where one imagines what it would be like to effectively monetize contacts+friends+family into some kind of PWM client book, collect management fees.

I literally just stumbled on this site: http://forums.registeredrep.com/....there is some hilarious content:

<span class=keyword_link><a href=/company/morgan-stanley target=_blank rel=nofollow>Smith Barney Advisor</a></span>:

I dress sharp, have succeeded in every job I have ever had and built a nest egg of over 400k before entering this [PWM] business. I am 40. I was about making money, investments, providing education and taking care of clients. My work ethic was never in question. .

My honest opinion is this business is a piece of shit. I could write a book on this. I am 4 years into a piece of shit career built on the hope and hype that was relayed to me.

Lets say you charge 1 percent on fee based you get paid to grid 30 to 40 percent. So if everything goes perfect your client invests 100k and everything is under fee you raise $1000 for the firm. You get paid to grid 30, 35, maybe if your lucky 40%. That's $300 - $400 per year for that. How many $100,000 accounts do you need to make $50k or 60k a year. Exactly.

Questions:
-So is this true - you make <0.40% on your book's AUM?
-What if someone guaranteed you 0.60% @ a startup RIA - would you go?
-Would your clients go?
-What is stopping the largest FA producers from leaving these BBs (ML, MSSB, UBS, etc) and setting up their own shops (e.g. do they have multi-year guarantees)?

Comments (21)

May 10, 2011

.

May 10, 2011

To answer your questions...

1) It depends on the shop and length of time at said shop you are at. It depends on the kinds of accounts and business that you do. It depends on your overall AUM. It depends on the products your clients are invested in/own. I know guys that on their team's book of business, that generate ~15-20MM in net (after all the fees, splits and shit) revenue for a team of 4 brokers and 3 support staff. I know a guy that does 5MM in net revenue. I know a guy whose trading only portion of his brings in a net revenue of 2-3MM. I know others who only do ~1MM Gross. The blanket statement made by the guy you quoted does not belay the fact that we have no idea how his business is structured.

2 & 3) See above. Depending on the products your client is invested in, and what they are doing, as well as the requirements by the RIA, it may or may not be beneficial for either you or the client. It also depends on the client and their preference or if they are locked into staying with the firm you're at.

4) Again, see above. Some brokers will never leave because of the products they offer to clients. Products are essential, as some products have a trailer that will not be transfered and are illiquid (think PE/HF investments made through a placing agent) and won't transfer. Others are tied to a multi-year deal and may jump after the deal is done. Others are "institutional" in that they have been at a shop for an extremely long time.

Besides that, setting up your own RIA has it's own issues that not everyone wants to be bothered with, particularly when you have to consider things like custody matters and executing and settling trades.

May 10, 2011
Frieds:

1) It depends on the shop and length of time at said shop you are at. It depends on the kinds of accounts and business that you do. It depends on your overall AUM. It depends on the products your clients are invested in/own. I know guys that on their team's book of business, that generate ~15-20MM in net (after all the fees, splits and shit) revenue for a team of 4 brokers and 3 support staff. I know a guy that does 5MM in net revenue. I know a guy whose trading only portion of his brings in a net revenue of 2-3MM. I know others who only do ~1MM Gross.

Thank you. Awesome color - few followups
-What do you think is the total AUM of that team that generates $15MM in net revenue?
-What is the highest margin fee-based product available to a producer @ a BB FA?

May 10, 2011
Frieds:

2 & 3) See above. Depending on the products your client is invested in, and what they are doing, as well as the requirements by the RIA, it may or may not be beneficial for either you or the client. It also depends on the client and their preference or if they are locked into staying with the firm you're at.

What kind of distribution partnerships could be set up with a BB (clearly not the one you poached FAs from haha)? How much of that 1% management fee would erode?

May 10, 2011
Frieds:

4) Again, see above. Some brokers will never leave because of the products they offer to clients. Products are essential, as some products have a trailer that will not be transfered and are illiquid (think PE/HF investments made through a placing agent) and won't transfer.

What is a trailer? What if you already have FoF relationships to have access to even better products.

Frieds:

Others are tied to a multi-year deal and may jump after the deal is done. Others are "institutional" in that they have been at a shop for an extremely long time.

Everything has a price. How are these PWM books valued? P/B, NOI, ROE multiples?

Frieds:

Besides that, setting up your own RIA has it's own issues that not everyone wants to be bothered with, particularly when you have to consider things like custody matters and executing and settling trades.

Someone sets up an RIA for you, manages the entire thing, raises capital, you hear big producers going there, everyone is guaranteed ~0.60%. What would make a client jump with you? This is invariably a bad trade for the client right?

Thanks again

Learn More

Boost your resume and land a finance job by passing the FINRA SIE. 264 pages & 1981 smart flashcards written by a former 8X top Fidelity instructor. Try it for 0 bananas here.

May 10, 2011

In Canada the grid is min of 45% and they charge 1 - 1.25% (Higher for discretionary management). Many firms have a minimum AUM of 10mm within two years to stay at the firm. Most IAs are happy to build a book of 30 - 100mm and then lead a decent, mostly worry free lifestyle. The true winners never stop bringing in new money, and are the ones mentioned above making 7 figures and work four days a week (by the time they're successful, their team does 90% of the paper pushing, investing work)

May 10, 2011
Unforseen:

In Canada the grid is min of 45% and they charge 1 - 1.25% (Higher for discretionary management). Many firms have a minimum AUM of 10mm within two years to stay at the firm. Most IAs are happy to build a book of 30 - 100mm and then lead a decent, mostly worry free lifestyle. The true winners never stop bringing in new money, and are the ones mentioned above making 7 figures and work four days a week (by the time they're successful, their team does 90% of the paper pushing, investing work)

Canada always for the win. Still. a $200MM book gets you $900k net revenue to FA, which is i guess ok... this is def reflective of the market being oversupplied. If anything that grid and management fee are compressing though. Thanks for the great color!

Jun 3, 2011
Unforseen:

In Canada the grid is min of 45% and they charge 1 - 1.25% (Higher for discretionary management). Many firms have a minimum AUM of 10mm within two years to stay at the firm. Most IAs are happy to build a book of 30 - 100mm and then lead a decent, mostly worry free lifestyle. The true winners never stop bringing in new money, and are the ones mentioned above making 7 figures and work four days a week (by the time they're successful, their team does 90% of the paper pushing, investing work)

Where are these IAs getting 30-100M? Last time I checked there's less than 2M millionaires in Canada. Assuming all of their assets are under management, 2M X 100MAUM = 200 TRILLION.
Clearly such wealth does not exist in Canada, so your #s do not make sense, considering the Canadian Pensions & Canadian banks holds a large mutha fking chunk of Canadians individual wealth.. how many ppl actually manage a book of that size?

May 10, 2011

Everything for an FA depends on the book of business and how it's set up. I know people who are all trading and can clear that much. I know guys that do discretionary management and clear that much. I know people with a mixed business who do that. The size of your book isn't the entire equation. It's how your book is built. I knew a broker from Bear who, among his other trading accounts, was executing trades for Galleon, PTJ's funds, Pershing Square and one or two Tiger Cubs. I know another guy who has half a billion AUM that's all discretionary. It's not about what the total AUM is, but how the book is built.

Highest fee product depends on the firm and their rules. A discretionary account with a 2% AUM Fee is up there. Private Placements and Custom Solutions can generate high fees. Everything is all firm related.

As to the last question, no idea.

May 10, 2011

thanks Frieds

May 10, 2011

Yeah im on the track now and it really is a whole different game then what PWM and IB is. We are essentially eating what we kill. The payout might not be great but the point of it is to build a business that the firm is going to do the most of the financial weightlifting while you only have to do the asset gathering. Its extremely hard work but can pay 6 figures with 2 years and will reach uper 500 to multi-mm within ten years if certain steps are followed.
The way you build your business will determine how things work.

May 10, 2011

I think the payout is low and could contract more over time (more FAs for fewer assets -- e.g. the rise of do-it-yourself personal investing). In a leverage constrained environment, Banks need revenue growth, not asset growth...because you must fund w/ extra equity capital unless you want leverage to rise, regulators aren't with that...

Yes...It's hard work and someone has to do it. The surprising thing is that there are far more instances from ex IBs/Trading employees getting a higher bid to go to a competitor or start their own shop (arguably less "entrepreneurial" paths) than PWM. This keeps things in check if the 'house' chooses to retain more profit (kind of like is happening in your world, where they are just violently crushing you on the firm/FA grid/split).

You just don't hear of high producer PWM guys that wake up one day and say "40% grid is BS, I'm worth way more, pay me more or I'm out!" and take their relationships/assets over to either (a) another BB (b) A startup RIA with juicier payouts (c) start their own AM/PWM/RIA firm. Guarantee you if this happened much more they would be less keen on squeezing you guys from 40% to 20% or whatever

May 11, 2011

Well realize that firms are also using more and more sticky products these days. They are offering full packages to the clients these days. They are offering checking, dd, insurance, mortgages, investments, trusts....etc. What this is doing is its making the customers entire financial relationship been more tied to the firm then the FA. It used to be that Fa's would leave firms and get 1mm signing bonus every 4/5 years. Now they are so much tying the client to the bank that its becoming extremely difficult to transfer your full book of clients out.

May 11, 2011
Angelus99:

Well realize that firms are also using more and more sticky products these days. They are offering full packages to the clients these days. They are offering checking, dd, insurance, mortgages, investments, trusts....etc. What this is doing is its making the customers entire financial relationship been more tied to the firm then the FA. It used to be that Fa's would leave firms and get 1mm signing bonus every 4/5 years. Now they are so much tying the client to the bank that its becoming extremely difficult to transfer your full book of clients out.

You're telling me some of the top retail brokerage salespeople in the world can't convince their clients to jump ship?

May 11, 2011
DurbanDiMangus:

You're telling me some of the top retail brokerage salespeople in the world can't convince their clients to jump ship?

Yes they can but im telling you what the hurdles are nowadays. The people you absolutely think will come with you are the ones who sometimes wont. I know this because two guys in my office are coming in from ml and they are having issues only with the banking accounts and not the Investment aspect. People dont like changing their bank accounts when they have a system in place.

Jun 9, 2011
DurbanDiMangus:

You're telling me some of the top retail brokerage salespeople in the world can't convince their clients to jump ship?

From my time in the business, I can tell you that this isn't as simple as people assume. Although a top wealth manager tries to convert every relationship (to his/her new firm), the success rate is never really above 80%.

For example, those high-net worth clients aren't simply sitting there and just hanging out. The moment a wealth manager leaves (for instance Merrill Lynch), the ML branch manager will assign that WM's accounts to the best salespeople in the ML office. It is literally war in the trenches at that point as the transferee will be trying to win back clients who have already be contacted and wooed by some top WMs at the original firm.

Although the original WM has the pre-existing relationship, the new assigned WMs have certain advantages too. First of all, the accounts are still at ML and it is a lot of work to transfer over. Secondly, ML will often lower client fees (sometimes even to zero) to keep the client (and this is a devastating move for the WM who just transferred). Lastly, the new coverage guys at ML will spread a whole slew of lies about the WM who just left and critisize every investment in the clients' accounts. In combination, this makes relationship conversion extremely difficult these days.

May 11, 2011

Not that I have any experience with this, but from the point of a consumer, I HATE having to change my banking routing. I would definitely drop and FA who jumped ship more than once.

May 11, 2011

yea that's true. sticky products and too many FAs.

Jun 4, 2011

There is definitely $ to be made. I'm in the business myself. I'm on track to make $150-200k by the time I'm 26, and that's working M-F 8-5. It starts to flatten out from there, but there are opportunities to get up to $500k-$1m in comp.

Best Response
Jun 9, 2011
Comment
    • 2