For those who are unaware of the math of broker “books”, this article is an enlightening read. The piece is specifically about trends at Merrill Lynch, but the overall comments are applicable to most investment brokerage firms today. Frustrated by huge volatility, and cumulative losses, retail clients have been pulling assets out of equity funds for the past 5 years. Equity allocations pay the highest fees and commissions to the brokers. Now that securitization, stealing re-hypothecating client assets and wildly leveraged proprietary trading have all become more scrutinized by regulators, the brokerage business is feeling the strain of lower fees. See: Broker Departures accelerate at Merrill Lynch.
All is not well in the land of mainstream financial advice sales. Although brokers who move a big book of clients can still barter some nice upfront bonuses for themselves. Clients, on the other hand, have not been faring well for at least 13 years since the secular bear began. But why let a little thing like harmful outcomes to clients hinder one’s business model?
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A great read on this subject (and a funny one at the same time), which might even be considered as becoming a classic, is Where Are the Customers’ Yachts? http://www.amazon.com/Where-Customers-Yachts-Street-Marketplace/dp/0471119784