A well-known joke:
A surgeon has a problem at his house. He calls a plumber. The plumber arrives at the house and sets to work. A few minutes later, the repair is done and the plumber presents the doctor with a bill. The doctor is shocked by the size of the bill.
“This is incredible. This is more than I make practicing medicine,” he says.
“I couldn’t make that much when I was in practice, either,” the plumber answers.
An exaggeration? Absolutely.
But substitute a stock broker for the plumber and there’s a good chance you’re talking about real life.
Surprised?
So was I. But a Sanford Bernstein & Co. report on the Future of Financial Services made me curious. Issued more than a year ago, the report estimated the compensation of the average retail broker at $156,000 for 1996, a whopping increase over the $128,800 for 1995. In fact, the estimate was a bit high. The Securities Industry Association later reported that in 1996 the average broker produced gross commission revenue of $358,800 and had average W-2 earnings of $143,000.
As a person who has actively pursued jobs that require no heavy lifting most of my life, I’ve got to say that’s a pretty nice number. In addition, the number of people earning such sums is growing faster that you can say “Show me the money.” In 1981, the year before the start of The Mother of All Bull Markets there were 61,000 retail brokers. By 1996 there were 108,000 retail brokers.
You should also know that the $143,000 income figure does not represent some narrow elite of brokers. The Securities Industry Association keeps a separate tally of the earnings for institutional sales reps. Their earnings are a lot higher. This $143,000 figure is the average of all the retail grunts all over America. It includes brokers who earn far more and brokers who earn much less.
How does it compare to the average doctor in general practice?
According to the American Medical Association, the average doctor in general or family practice earned $131,200, net of expenses in 1995. The figures for 1996 aren’t available yet but a number of articles have suggested that 1996 was the first year in which most doctors experienced an actual decline in income. If you assume, instead, that they maintained their long term rate of increase, 1996 average earnings would be about $137,500.
Either way, the average doctor earned less than the average stock broker in 1996. The AMA also keeps track of medical earnings by specialties and, just as the average retail broker earns a lot less than an institutional salesman, a doctor in general practice earns a lot less than a specialist.
The table below shows the earnings of doctors, brokers, and the threshold for the top 5 percent of income earners since 1981. ( Years in which broker earnings exceeded doctor earnings are in bold type.)
Doctors, Brokers, and The Top Five Percent Earners
|
Year |
Doctor Income |
Broker Income |
Top 5% |
|
1981 |
$71,500 |
$56,000 |
$60,000 |
|
1982 |
$71,400 |
$63,000 |
$65,300 |
|
1983 |
$66,900 |
$83,000 |
$69,400 |
|
1984 |
$71,600 |
$64,000 |
$74,600 |
|
1985 |
$77,900 |
$80,000 |
$79,000 |
|
1986 |
$80,300 |
$97,000 |
$83,400 |
|
1987 |
$91,500 |
$94,000 |
$87,000 |
|
1988 |
$94,600 |
$71,000 |
$92,000 |
|
1989 |
$95,900 |
$79,000 |
$99,000 |
|
1990 |
$102,700 |
$79,000 |
$102,400 |
|
1991 |
$111,500 |
$98,400 |
$102,800 |
|
1992 |
$114,400 |
$116,500 |
$106,800 |
|
1993 |
$116,800 |
$128,600 |
$113,200 |
|
1994 |
$121,200 |
$117,000 |
$120,000 |
|
1995 |
$131,200 |
$128,800 |
$123,700 |
|
1996* |
$137,500 |
$143,000 |
$128,000 |
|
1997 |
NA |
NA |
NA |
Sources: American Medical Association, Securities Industry Association, U.S. Bureau of the Census, Current Population Reports. * Doctor earnings estimated based on average rate of increase since 81-95.
Are there any messages here?
Yes. From 1981 to 1985, Doctor earnings exceeded stockbroker earnings in three of five years. From 1992 to 1996, the pattern was reversed: stockbroker earnings exceeded doctor earnings in three of five years.
Doctors started the period as solid top 5 percent earners, lost ground for a few years, and regained it. Brokers started far below the top 5 percent but finished well into it.
In the big picture, both are doing fine…until you consider the differences.
Stockbroker training varies greatly but wherever you go, it is measured in weeks, usually at the expense of the firm, not the trainee. That’s it. You won’t earn $130,000 in your first year but you’ll be told that you should be earning that much within a few years. The dropout rate is high.
It takes a bit more to become a doctor. Medical school and internship take years, not weeks and most if financed by the student. A typical M.D. now starts practice with about $100,000 in debt. Possible monetary rewards notwithstanding, the training requires a level of commitment, ability, and tenacity that very few people possess. Ironically, doctors are now in a profession where an act of charity is criminalized by administrative law. A recent issue of Group Practice Journal warns “Don’t Let Good Intentions Lead You Into The Danger Zone.” A doctor who forgives a Medicare co-payment because the patient is financially pressed can be deemed to have committed fraud and fined $10,000 for each instance. Compare that to broker arbitration.
My prediction: there will be only three kinds of doctors in the future;
- Doctors who have retired.
- Doctors who practice because they can’t afford to retire.
- And doctors who have become stock brokers.
Whatever happens, the very best investment you and I can make is to stay healthy.
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Jonathan Borba
(c) Scott Burns, 2022