There is nothing new about brokers jumping from job to job over the years, as it’s simply part of the business. But what has changed with those leaving the large firms like Morgan Stanley (NYSE:MS), Citigroup (NYSE:C), Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) this time around is the higher-producing brokers are leaving, and a growing number of those leaving are starting their own firms.
At this time it hasn’t become a flood of brokers leaving, but the changes in how it is happening and who are leaving has suggested it could end up being a significant number before the smoke clears.
One example of what has changed are those brokers leaving who have made over $1 million a year. That is something that hasn’t happened in the past, and bears scrutiny because of that fact alone. Something seems to have happened to cause the exodus of these and other brokers at levels that have some starting to get a little nervous about it if it increases in numbers.
While that may be true at Bank of America, overall brokers continue to leave the companies and start up their own, while with others it’s the usual practice of switching firms. For example, 28 percent of wirehouse advisers went independent who left their jobs, while 23 percent simply went to one of their rivals. A year ago only 7 percent moved out to go independent, showing there has been a huge move toward that as a career choice over only migrating to another firm with the only thing changing being the name on the door.
An additional element in the mix is the new services offered by custody providers like Fidelity and Charles Schwab who make it easier for independents to trade more like their larger competitors do.
The big debate going on now is if this will continue on for years into the future, and if eventually a large number of independents who do good business start to cut into the market share the large banks in the future.
Most are leaving because for the usual bureacratic reasons, which seem to be getting worse in the increasing regulatory atmosphere, but also all the battles that are surrounding the huge financial institutions, which some have been weary of being part of and don’t like being associated with the reputation now surrounding the major banks.
Finally, and possibly the biggest one, is the tools used by the big banks to hold the brokers there have been substantially weakened, and that leaves them without a competitive advantage against their own people who now see they have nothing to lose by starting out on their own.
All of these things combined seem to point to a lot more brokers leaving, with the question being whether or not in the years ahead – together – they’ll start taking a lot of market share from their former employers.
If that’s the case, it’ll be difficult to combat by the majors because they may have to focus on hundreds of firms rather than the relatively few big players they compete with today.
