According to today’s Wall Street Journal in an article entitled Brokers Abandon Wall Street, the number of brokers leaving brokerage firms is on the rise due to slumping markets and shrinking fees. In April alone, 2,800 brokers left the securities industry. At this pace, 35,000 brokers will exit the industry by year end. That would be record by a long shot.
Investors need to pay attention to this trend because it serves as a rare glimpse into the minds of financial advisors right now. However, it is not the financial advisors who are leaving that investors need to be watching. Investors should be paying close attention to those financial advisors who are not leaving the industry. In an environment where fees and commission are on the decline, financial advisors likely will be looking to sell higher commission products (ie. deferred annuities) to make up the difference. In addition, instances of churning will also be on the rise. Churning is an unlawful practice where brokers make excessive trades in a client’s account for the sole purpose of drumming up commissions.