The Death of the Peter Principle?
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Branch managers are supposed to be — to borrow Reggie Jackson's own assessment of himself when he played for the Yankees — the straw that stirs the drink. That is to say, branch managers are supposed to make it rain: identify and recruit talent, manage branch business operations, help close on new business and, in general, motivate reps to new professional heights. Branch managers also used to be expected to deliver — on top of that — tailored financial advice to their own clients, too.
Which is why some experts speculate that the “producing branch manager” is a dying breed — with more broker/dealers now hiring professional managers instead of promoting top producers (a la the Peter Principle).
The Securities Industry Association does not have hard numbers on the situation, it “just has a general sense that there are more nonproducing branch managers — proportionately speaking — than producing branch managers,” says Steve Carlson, SIA vice president and director of surveys. “The general trend is going in that direction. It's clear that branch managers' full-time jobs are devoted to oversight and compliance and everything else. [Now] you spend more and more time dealing with matters other than your own book.”
Officials at Wachovia Securities say about 80 percent of branch managers are not producers. Rick Peterson, of Houston-based executive research firm Rick Peterson & Assoc., agrees. “That job [producing managers], with a few exceptions here and there, most of those jobs are going by the boards,” he says. “Nobody has time, unless they're finding a way to get compliance and administration resolved with someone else.”
The movement toward professionally trained BOMs is suggested in the SIA's annual study on industry compensation: For the third consecutive year, nonproducing BOMs grossed an average of $391,618 in 2003 total compensation; producing BOMs gross just $273,202. Part of this is because the stipend for associate managers is usually small.
“I think the branch managers of old went in, they were doing production, they were doing some compliance work and some sales management work,” says Darryl Metzger, senior vice president and director of branch administration for Louisville-based Hilliard Lyons. But “because of all the additional rules, additional regulations and additional focus and scrutiny of those regulations,” Metzger says BOMs simply can't run their own books like they used to. “[Regulatory issues] are taking up more and more of their time,” he says.
That's not to mention the potential conflict of interest involved with any branch manager working as a producer. Many branch advisors, according to recruiters, feel threatened by the inherent conflict of interest when they are being managed by someone who could be going after the same clients they are. Also, when the supervising authority is also producing, he may be able to cheat on his own — like Frank Gruttadauria, the Lehman broker who absconded with millions of his clients' dollars. Gruttadauria was a producing BOM.
To help solve the conflict-of-interest problem, some offices put a limit on how much a branch manager can produce. But putting a cap on how much a producer can make has its own inherent problems, which often have branch managers eschewing that job. “I wasn't enjoying the last few years of the experience,” says one former wirehouse branch manager who now works exclusively as a rep. “I was doing in the $1.5 million area for my book, and they capped production at no more than $150,000. From a financial perspective I decided it was better to continue with my book.”
To help producing branch managers cope, some firms, such as Morgan Stanley, have created an “assistant sales management” position. But at large, big-city offices, it just makes sense for someone to run the office, sans book. “You just can't produce very well and run large offices,” says New York-based recruiter Michael King.
Keep in mind, though, once you give up your book and cross over to management, it's hard to go back. One regional branch manager sums up the dilemma: “At some point I'm going to have to make a decision — you're a branch manager, sales manager or you're a producer. Right now, I'm wearing all the hats. At the end of the year I think I have to ask the big question, ‘What am I going to be?’”
