New requirements and bigger fees instituted in November could put franchise ownership out of reach for many brokers

December 2, 2009 — 4:30 AM UTC by Brooke Southall


A series of changes that are remaking Ameriprise Financial Inc. more along the lines of a pure wirehouse are angering some long-time employees and causing some turmoil at the advisory giant.

In its latest move, the Minneapolis brokerage giant is switching its rules to make it much harder to go from being an employee to being a franchisee. Amerprise employees now must meet steep qualifications, such as working for the company for 10 years, before becoming a franchisee, or face paying high fees to set up their own shops.

For decades, Ameriprise, which has the fourth-largest advisor network in the nation, has inhabited a kind of gray area between being a wirehouse and an independent broker-dealer.

But out of the market upheaval of the past year, a new Ameriprise is emerging: one that is moving away from the branded-franchise business toward a business built on employee-advisors, many drawn from the wirehouses. One casualty of the remaking of Ameriprise may be the company’s much-vaunted financial planning training program, which is shrinking as the company brings on fairly experienced brokers.

“Me and some of the advisors that have been here are unhappy and angry,” says one Ameriprise employee, who asked not to be named.

High barriers

Ameriprise advisors and former Ameriprise advisors, all of whom asked to remain anonymous, say that the changes are unpopular and that they are resulting in advisors leaving the company because of the high barriers to franchise ownership – a beacon of sorts because it pays significantly higher payouts

But the changes are intended to be helpful to both the advisor and to his company, says Patrick O’Connell, senior vice president, Ameriprise Advisor Group.

“If someone wants to migrate into the independent channel, we have a good perspective on what someone needs to succeed,” he says. “We made the change because of our experience of 10 years in running multi-platforms” suggests that people starting with this foundation have better odds of success.

Ameriprise will continue to service franchisees and use them as an important platform, O’Connell says. There’s just a shift in emphasis in growing the company by hiring successful brokers, he adds. See: How Ameriprise used its franchise system to snare a Smith Barney breakaway

As of November, a staff broker at the Minneapolis-based broker-dealer must first have $200 million of gross dealer concessions and $20 million of assets under management to apply for the independence of franchise ownership. The Ameriprise employee must also have been an advisor with the company for 10 years.

Previously there were no such bright-line tests in place at Ameriprise.

Another unpopular aspect of the Ameriprise’s changes: If an advisor chooses to become a franchisee ahead of their 10-year anniversary, they must hand over a fee to Ameriprise that equals 15% of their revenues their first two years as a franchisee.

Feeder system

Ameriprise is determined to get a better return on its training dollar, says O’Connell. “Very simply, we realized that on the employee side that we were running a feeder system to the franchise business” of Ameriprise, he says.

The company has faced a talent drain not only from brokers become franchise owners, but from franchise owners bringing employees under their umbrellas.

To further discourage franchisors from preying on the talent of Ameriprise with impunity, the company will now charge them a fee equal to 2% of the breakaway employee’s assets under management. Employees say that the fee was previously 1%. O’Connell says it ranged from 1% to 1.5%. A franchisor has two years to pay the fee after bringing the Ameriprise advisor aboard.

This move is intended to be certain that the effort and expense poured into advisors by Ameriprise stays at the company.

“Very simply, we realized that on the employee side that we were running a feeder system to the franchise business” of Ameriprise, O’Connell says.

One Ameriprise staff broker says that he and some of his co-workers are very concerned about this doubling [in his case] of what it would cost to go to work for a franchisee. He hopes that he and his colleagues will be able to convince Ameriprise to grandfather them in at 1%. “This may be my last chance,” he adds.

Questions and concerns

O’Connell says these kinds of concerns are not widespread. “We’ve had a small number of people who had questions and concerns,” he said.

However, the head of sales at one asset custodian said the number of people dismayed by the changes is bigger than O’Connell may realize, and the efforts to lock employees in place could backfire. So dissatisfied are many of the employees that entire Ameriprise staff offices are talking to the custodian en masse, the sales director says.

Meanwhile, Ameriprise is in the midst of efforts to reshape its advisor force. Just in the past year, it has hired 500 financial advisors from other firms, an amount that increases the total 20% to 2,500 total employee advisors in what is known as the Ameriprise Advisor Group. Ameriprise has more than 7,000 franchisees.

Ameriprise expects 2010 to be a very big year for hiring successful advisors with books of business, O’Connell says.

The company is particularly targeting wirehouse brokers with $30 million or $40 million of assets under management, the executive adds.

Ameriprise [NYSE:AMP] could use a winning strategy to help boost its shares, which closed yesterday at $38.92. The shares closed at $38.91 on Nov. 7, 2005, shortly after American Express spun off its advisor unit as a separate firm.

But in its bid for a more profitable business model, Ameriprise may be upsetting its famed financial planning culture because its hires come from such a strong sales background.

Select few

“Some are okay,” one Ameriprise advisor says. “But financial advice just isn’t the world they come from. We train some of them [in financial planning] but it’s a select few” who are receptive to it.

Some of the new hires have been with the company for less than a year and they simply need time to adjust to the new culture, O’Connell says.

With new hires abounding, Ameriprise’s vaunted training program has shrunk, according to the Ameriprise executive.

“It’s not that we’ve abandoned novice hiring,” he says. “It’s just that we’ve slowed it down dramatically.”

The new strategy is to train 50 to 100 “very talented” novices rather than several hundred prospects with a lower median level of talent, according to O’Connell.

The emphasis on creating a strong employee-based system while de-emphasizing franchisees is sensible, according to Robert Ellis, senior analyst of the securities industry for New York-based Novarica.

“You have this group of franchise advisors out there that requires extensive compliance management and are not exactly large producers,” he says. “Why not bring the better ones into the firm as employees – keep relatively high payouts and cut their expenses – and squeeze out the franchise model over time?”

Facilitating franchisees is counterproductive, all things equal. “Why allow employees to go in the opposite direction and increase their payouts?” Ellis asks.

Arbitrage move

Indeed, one of the reasons so many employees wanted to become franchisees, or grow their Ameriprise franchises by hiring Ameriprise employees, is the higher payouts. Bringing employees over to a franchise is a simple arbitrage move: employees get payouts of 25% to 50% at Ameriprise versus payouts closer to 80% on its franchise side, he says. [Employees told me 25% and an Ameriprise spokesman told me payout were closer to 50%.]

Ameriprise has an advisor force of 12,500 in the wake of its acquisition of Brecek & Young, which brought 300 advisors, and an additional 950 advisors from its H&R Block purchase, according to the company’s 2008 annual report.

It’s yet another brand under the Ameriprise unbrella that may serve as a template, Ellis says.

“Ameriprise also owns Securities America, which is doing quite well,” he says. “Securities America represents a better growth model than the branded franchise model.”

Share your thoughts and opinions with the author or other readers.


Matt said:

December 2, 2009 — 4:33 PM UTC

Amerprise had an opportunity to redefine the financial services industry after what occured in 07 and 08 but instead they are modeling themselves after proven failures such as Merrill and UBS. Great move.


tr said:

December 3, 2009 — 10:53 PM UTC

I have worked on the employee side for 8 years, and many of those were in management.. I recently got denied the opportunity to goto the franchise side… I would never recomend working here, I just can’t get out, or I would..!


Larry said:

December 4, 2009 — 6:23 PM UTC

The main focus of Ameriprise (as we were constantly told) is about “driving value for the shareholder;” the unspoken goal seemed to be way-overpaying the bozos at the top who systematically convinced the best advisors to leave the company by providing inferior service, lower payouts, a fraction of the options, nickel-and-diming, and contant fiddling with pay-out grids. They seemed to see us as their self-sustaining sales force, not independent business owners. It mystifies me why advisors who can leave, don’t leave. Those who can’t almost invariably see their employment as a kind of prison term. The grass actually IS greener on the other side, for advisors AND their clients — I know from experience. It used to be one of the places you could start in the business (no more, apparently), but after that, get the hell out. I really wonder who would join them?


Joe said:

December 6, 2009 — 1:01 PM UTC

Ameriprise financial Service, Inc has been very good to both my clients and I. The company is simply taking advantage of the economic environment which will lead to value to our clients and shaeholders.


Hugo Haston said:

July 17, 2012 — 4:10 PM UTC

Having a financial background, I was reading an article at USAA whereby AMP is listed as a great franchise to own based on 0 loan defaults…now I know why. Working in mtg banking I know too well how reward matrix are manipulated, and will pursue my representatives to license ALL forms of commissions- so that upper management “bait and swap” schemes cease for unlicensed “other” financial sales with personal compensation contracts- which are too cumbersom to pursue against big business through the courts.


Klm said:

September 13, 2013 — 12:13 AM UTC

I worked at AEFA for over 10 years … This company, at its heart, has NEVER, shot straight with its people.

When this company COULD be moving the industry toward becoming a profession (given its size). They choose to stay on the commission side of the line and NOW, rather than helping our world change (to one where we REPRESENT clients) they are fighting to keep a bigger piece of a shrinking commission pie.

Myopic, at best

Submit your comments: