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The Year of the Breakaway Broker?

Last week I mentioned a recent Charles Schwab Corp. broker survey that showed there is one thing that stops most brokers from going independent and becoming a fee-only advisor: commissions. 52% of brokers admitted that they would not be willing to leave their Wall Street firm and give up all of their commission compensation. That’s understandable. Who would want to breakaway and give up their cash cow?

As much as brokers have a strong incentive not to go independent, some are finding a good reason not to stay with their brokerage firm…the name.

Once upon a time, before the financial crisis, a well-known Wall Street name was an asset. Hang a sign on your door, and you had instant name recognition and credibility.

Hang a sign on your door today, and you’ve still got name recognition…but that’s no longer a good thing. The names that were once a symbol of assurance have tarnished. And that’s a problem for brokers who have to pay up for that tarnished brand.

Brian Hamburger, attorney and founder of MarketCounsel, works with breakaway brokers, and business has doubled so far this year. Retention contracts are winding down, and brokers are walking away. “They have had enough…they pay a lot for a logo that doesn’t open doors the same way it did years ago”, he told Investment News. Brokers give a sizable percentage (sometimes 60 to 70%) back to the wire house…and more and more are finding that the name isn’t worth the price.

Wall Street firms see what’s happening, and they are sweetening the deal by offering better terms for new contracts…for their most successful teams.

The lesson here is about the difference between a broker and an advisor: a broker needs a big Wall Street name to open doors…a real advisor provides a service that doesn’t need a Wall Street name in front of it.

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