Bank of Montreal is cutting brokers in dribs and drabs

“BMO has done a mini Scotia,” came the message from the other end of the phone.

“What do you mean,” came the reply from this end.

This week the bank marched out of its offices a number of brokers/investment advisers it determined either weren’t generating enough revenue overall, or not generating the right kind of revenue, or not growing their books of business fast enough.

It’s understood this week’s departures continue a recent trend that has left about 30 brokers needing to update their business cards. Like this week’s involuntary departures, the brokers have been leaving in dribs and drabs over the past days. BMO didn’t respond to a request for comment.

It’s understood that $600,000 in annual commissions was about the low water mark the brokers were required to achieve in order to keep their jobs. The other criterion about who stayed and who didn’t was the mix of business that the broker brought in: to the extent that it was fee-based and incorporated a range of services including tax and estate planning, the brokers tended to get looked after — but there was less pity for those whose business was more transactions-oriented and not that broad in scope. One source said “brokers whose business was not growing or not strategically aligned,” were affected.

Banks like fee-based operations that offer multiple services — because it is easier to predict revenue and profitability.

“The brokers were marched into an office in the morning and were told, ‘You’re gone here’s your letter,’” said one source familiar with the events.

And to add a little spice to the day’s proceedings, the clients of the investment advisers found out they had a new person looking after them.

“The IAs who were let go, discovered when they called some of their clients, the clients told them they had a new broker,” noted another source.

In this model, the employer — in this case the bank — and not the employee is deemed to “own” the client. Most firms operate with such a model but at Raymond James, the broker owns the client-relationship. Indeed such a relationship is written into the employment contract.

The brokers were marched into an office in the morning and were told, ‘You’re gone here’s your letter’

Accordingly if the broker leaves then the firm will facilitate that move — rather than convince the client to stay at the firm. “It’s a matter of respect,” said Peter Kahnert, the firm’s senior vice-president of marketing and communications. “We create an environment where the advisers choose to stay because it is theirs and their clients’ best interests. We don’t push proprietary products onto them.”

Earlier this year, Scotiabank started the process of reducing head count by culling about seven per cent of advisers and their assistants — about 70 people in all. Those changes came as something of a surprise not only to the individuals affected but also to the rest of the Street. But the changes are in line with the bank’s determination to employ fewer advisers with larger books of business: it’s easier and also more profitable.

The changes are part of another trend in retail money management: low-cost robo advisers have arrived and are offering clients mathematically derived solutions. And they are attracting assets, which in normal circumstances would have ended up with the brokers. Add in the continued growth and diversity of exchange-traded funds, a new grid — meaning the commission-split between the broker and the firm — and the retail brokerage world is evolving in many different ways.

Financial Post

bcritchley@nationalpost.com

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