How DOL is Changing Sign-On Bonuses and Other Indie BD Procedures

Jon Henschen

A profitability shell game is currently going on, as profit centers such as ticket-charge markups are sacrificed while advisory administration fees increase.

Jon Henschen’s June 13 ThinkAdvisor article, “How DOL is Changing Sign-On Bonuses and other Indie BD Procedures,” discusses how the wirehouse channel is cutting back dramatically on upfront money offered to join their broker dealer, citing the recent case of Merrill Lynch, which is trying to grow without offering traditional sign-on bonuses.

His article observes that DOL rules are having an impact on the independent broker-dealer channel as well, but not in ways you may think. Of the 3,902 FINRA member firms (as tracked by Fishbowl Strategies in late February), approximately 25% offer some form of forgivable note (or sign-on bonus) to aid in the expenses and disruption of a broker dealer switch. Much of this is concentrated in the top 50 independent broker dealers by revenue.

Henschen states that, “A profitability shell game is currently going on, as profit centers such as ticket-charge markups are sacrificed while advisory administration fees increase. Recruiting has been impacted to a degree, primarily in the form of recruiter layoffs at several broker dealers. Sign-on bonuses have not changed dramatically, with the exception of Jackson National broker-dealers National Planning, SII, Invest and Investment Centers of America.”

The article continues by examining how the DOL rule affects various independent broker dealer procedures.

One DOL-influenced trend is advisor profitability. Bonuses are increasingly based on profitability of an advisor’s practice rather than based solely off gross dealer concession. Henschen notes the case of…

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