Most consumers don’t know that there are two primary regulators for financial advisors. Further, most don’t know that one of those bodies is not governmental, but a self-regulatory body.
Advisors who charge fees are generally regulated by the Securities and Exchange Commission, a government regulator, but “Advisors” who earn a living by selling products (receive commissions in exchange for selling mutual funds and variable annuities) are regulated by an entity known as FINRA, the Financial Industry Regulatory Authority, which is a self-regulatory body.
Every year the big brokerage firms (and the little ones to) announce an updated compensation plan for their brokers. This annual exercise is waited on with baited breath as the firm’s army of brokers will find out how their owners (er, bosses) want them to structure there business. The compensation grid is designed to manipulate the brokers into selling what the firm wants sold and structuring their business in a manner that will benefit the firm. Lately, Merrill Lynch (and others) have begun implementing policies that are designed to handcuff the brokers and make it nearly impossible to work in their clients best interest (as if that was ever a goal).
The first policy change is with how Merrill wants their brokers to structure their business. Mother Merrill wants brokers to “partner” up. In an article on AdvsiorHub it was recently reported that brokers who don’t partner with another broker (normally an experienced broker with a new broker) will see their compensation cut. AdvisorHub reports in an unsourced quote, the following:
“Merrill Lynch is punishing its sole practitioners in an effort to keep their clients. This is another method of retaining the client at the expense of the advisor. Merrill is set to reduce compensation for non-partnering advisors over the next 18 months. The firm has a big initiative to get these seasoned advisors to take on a trainee because the firm has a great record of keeping trainees. Why not? They drink the Kool-Aid. They all believe Merrill Lynch is the best and are less likely to leave the firm. This way, if a seasoned advisor leaves to take a paycheck elsewhere (and achieve greater autonomy), then the trainee has immediate shot at retaining any clients.”
So if you are a happy sole practitioner at Merrill and you don’t partner with a younger, newer Merrill broker, you could see your compensation go down. Mind you that partnering with a newly broker might not be good for your business or your clients or the fact that you might not need to partner up as you are doing a fine job on your own, Merrill has commanded it and you must obey.
This policy has one goal, to retain the Merrill broker’s clients if they ever leave the firm. Yet another conflict of being at a wirehouse. It boggles the mind why anyone would work for any of these big brokerage firms.
“They have a supervisory system, which seems to flag the nonproprietary products and requires reps to jump through all sorts of hoops that they wouldnt [by selling] a J.P. Morgan product,” Mr. Aidikoff said.Mr. Tchan also claimed that the bank brokerage used financial planning software to direct clients into proprietary products.Mr. Tchan claims that a few weeks after he complained about the supervisory system last fall, his direct supervisor and a compliance official confronted him about switches he made from proprietary stock mutual funds into nonproprietary bond funds.In his claim, Mr. Tchan said that the trades were done to make his clients portfolios more consistent with their objectives, but that his supervisors did not believe him and “implied he would be terminated.”