Wall Street Brokers Seek Out Greener Pastures
Risk aversion, lower fees send investment advisors packing.
With nearly $7 trillion in US equity value wiped out since the bear market began, assets under management -- a key component of brokers' earnings -- are down sharply. Trading activity has slowed too, and with it, the fees they generate to arrange transactions.
Some brokers are leaving firms like Morgan Stanley (MS) and Merrill Lynch (BAC) on their own accord, seeking the freedom of trading their own account. Others are being shown the door or leaving Wall Street altogether. Low producers are faring the worst - at Swiss banking giant UBS (UBS) 600 brokers that bring in less than $260,000 in annual fees are losing their jobs. According to the Wall Street Journal, 2009 is on pace to see the biggest exodus of brokers in 15 years.
And of the myriad headwinds facing today's broker, the greatest is perhaps the public's growing aversion to risk.
Money has been moving away from stocks and bonds -- the typical broker's cash cows -- and into the relative safety of money-market funds and secured deposits. These low-risk investments carry paltry fees, much to brokers' chagrin. But with our economic future still highly uncertain, the investing public is coming to appreciate Mark Twain's adage that the return of investment trumps the return on investment.
This isn't just some transitory shift away from risk that will swing back as soon as the economy gives the all-clear (as if such a definitive message even exists). Americans' education on the perils of too much risk-taking without enough reward is ongoing, and those that believe we're at the bottom of this economic cycle have a fundamental misunderstanding of how we arrived at this juncture in the first place.
Decades of easy money and a government complicit in bailing out the most reckless risk-takers fostered a generation of economic actors with no frame of reference for truly challenging economic times. This mindset -- the entrenched belief that "what goes down must then go up" -- is still pervasive. It's changing, to be sure, but these are time-intensive structural shifts that can't be measured in tweets.
As risk aversion grows, savings increases, and thrift becomes mainstream, the old way of investing and spending is beginning to seem like the distant past. Make no mistake, this is a positive change; one that will enable our economy -- and indeed our country -- to build a stronger foundation from which real, sustainable economic expansion and an increase in our standard of living can grow.
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