How do these guys make $$?

Quote from cartm:

Interesting, seems like they are taking a page out of the Hedge fund managers playbook (1.5-2.0% annual fee).
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Well my brother-in-law who's at UBS/PW is none to happy to report that the std fee of 1% fee of assets under mgmt, is now being whittled towards more like like .66%.

Talk about a margin squeeze.

From talking to my Wall St. contacts, the Street is in critical condition.

Even my old boss, who was #1 Ranked Inst. Inv. analyst for 7 years straight , pulling down most likely 6-10MM yr. is leaving the biz.

If you have a big book; then you just keep getting the vig.

Simple as that, long as clients stay put.

Otherwise the Street is taking bodies out daily.
 
The boys at MLCO, at least on the Private Client (PC) side, make money in several ways. One, for each product they sell, they take a front-end or some other kind of load. Two, they also receive a trail from anything they sell, so, they continue to get paid even if they do not sell new investments to a client. They just need to keep bringing in new accounts to keep the gravy flowing. Three, they try to put clients in MLIM funds, so as to keep the money totally in-house. Four, any accounts under $100K are farmed out to a call center, so the FAs can concentrate on hooking the big fish. So, with a front-end, level, or back-end load, a trail, and a management fee all going to Merrill, it is a wonder the client ever makes any damn money. Please note, I did not even discuss traditional commission based business (other than the loads).

They also have discretion as to how much of the Financial Advisor's (FA) portion of the fee they can discount down. There is a greater ability to discount products that have a larger overall fee, i.e. Mutual Funds. Merrill has also been pitching itself as a one-stop shop lately. I believe they are doing this to sell the customer on the perceived convenience of their "overall experience". As one might guess, this convenience comes at the cost, from the client's perspective, of losing the most competitive (READ : lowest) fees on each individual product.
 
It's an annual fee based upon account value... if the account does well the broker makes more money, if the account goes down, the broker makes less money. There is NO sharing arrangement based upon profits.
 
Well, the brokerage biz has taken a hit from the net, (and from their own greed) but there seems to be those who are still doing well, most seem to be getting creamed, like many traders, its a tough mkt. But at some point you would think the brokerage biz would stabilize even if the economy stays stagnant. Reason I say this is bc no matter how many online brokers are out there, there will always be business for these guys, people who seek advice on portfolios...estates....etc.....so far since I started this thread I have seen the % range from .66 to I think 3.

While I think 3 is a bit high, and .66 a bit low I wonder where the industry will settle. Just something to ponder. I guess I am just pissed my idiot cousin who doesn't know the diff between common and preferred is making 6 figures when most traders who live this stuff are squeaking by. I would like to hear more on it if anyone has anything to offer, but in general my initial question has been answered.

p.s. I wouldn't be surprised if we saw a lot of independent brokerage shops pop up (former ML or USB guys who want more than .66 or 1.5 and think they can justify it)
 
Quote from cartm:

I guess I am just pissed my idiot cousin who doesn't know the diff between common and preferred is making 6 figures when most traders who live this stuff are squeaking by.
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Some of the FAs at Merrill actually tried to use the "buy a stock the day before it goes Ex-Div" strategy. They figured they would get the dividend, which is true, but the only problem the geniuses failed to account for, was that the stock "should" drop by the amount of the dividend. So, all they did was create a taxable event for themselves / their clients.

There was that, and the fact that 90%+ did not believe options should play a role in any portfolio, much less even understand how the instruments themselves work. The risk management guidelines were Byzantine, to say the least.

They were basically salespeople, recommending whatever the computer spit out. I was not very impressed. Although, several of the guys there thought themselves to be pretty SH.
 
most brokers have a ROA ( return on assets ) in the neighborhood of 1% - probably .66% on the low side and 2% on the high side. Assets under management depending on the mix i.e. mutual funds,fixed income,stocks,annuitties, etc probably range from $ 10 Mill to 100 Mill. With $20 to $50 Mill probably ave for a moderately successful producer. 1.5% on a $30 Mill book = $ 450,000 gross production / yr . I'm not sure what the going payout is but let's say it 35% , then he'll net $ 157,500. Most brokers now are probably concentrating on fixed and/or variable annuities - a much larger commission than equities or fixed income - prob. as much as 6% to 10% commisssions.
 
Quote from Jayford:

Most brokers are shifting over to a fee based on assets. Merril's 1.5% sounds about right as that's what my mom pays the same company.

Jay
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No, 1.5% is absurd. Absolutely no person on the the planet should pay this fee. What are you guys talking about???? There are situations where people do, they are wrong to. If your broker is charging you this, get the fuck out.
 
I worked at mother Merrill for over 2yrs as a Financial Advisor in the Private client Group, and still have a few friends there. It amazes me on how many people just post with absolutely no idea.
First thing is , your buddy better have more than a couple million. If he's still in PDP(he'll know what that is) he needs at least $10mil in his first 12months. If not, the best thing he should do (depending on his manager) is start shopping himself (and his book) around to other firms. There is nothing more that firms love than taking brokers/clients from other firms.

As far as how they are making $..like some other's have correctly stated, Merrill Lynch was making a huge move towards fee-based accounts in the late 90's. So if a broker's book is big enough he's still making $, just maybe less than a few yrs ago. So what a broker needs to do in times like this is steal assets. Network, cold-call, get referrals(preferably from clients that have not lost much) ..get people to talk to you..and as soon as they say , "well, I'm down about 25% in the past 12mos."...Bingo! You got 'em.

Some bad facts that were mentioned: 20% prof sharing? No way.
Putting clients in ML funds? No. There is no incentive, except for maybe some trip or coffee mug, to put clients in ML funds. In fact, many brokers will not because they can be more difficult to transfer to another firm. There was some other wacky stuff mentioned too.

Are brokers making $? Some are. And some have been squeezed out of the business.
 
Quote from Trajan:

No, 1.5% is absurd. Absolutely no person on the the planet should pay this fee. What are you guys talking about???? There are situations where people do, they are wrong to. If your broker is charging you this, get the fuck out.
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My mom's broker, at ML, completely manages the account with discretionary power. He does a lot of work. She has been using the guy 20+ years, and he has done pretty well, much better than some hack salesman off the street. For discretionary accounts like this, I think 1.5% is fair. It may even be lower now. I haven't asked Ma about it in awhile.

I believe your quote from above doesn't cover all siuations Trajan.

Jay
 
>>>the only Brokers suffering are the guys who were not good salesmen.....in the mid 90's you didn't have to be, but now unless you have a strong personality and story, you are dead in the water.....but there will be a strong movement back to brokers in the coming year....for every person who had a broker lose his $$$ for him and went self directed, you have two 'self-directed' investors who lost their shirts going at it alone!!!....it kind of like that commercial where the kid comes running in and says MOM , DAD I'VE BEEN ACCEPTED TO MED SCHOOL!!!"

THE mom says, oh that's too bad cause we don't have the money anymore for tuition, she looks at the husband and says "somebody thought it would be fun to daytrade"
 
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