Joseph Grano, who led UBS from 2001-2004, said Wednesday on CNBC that the wirehouse business model is fundamentally unsound and that he expects the breakaway-broker trend to continue. “In this decade, those firms lost their way. The capital-markets side of those organizations over-levered, going up to 40 to 1 in some cases, and violated good balance-sheet quality and quality earnings, etc.,” Grano said in a televised interview.
The main issue today at these firms, according to Grano (left) – who worked for Merrill Lynch from ’72-’88 before joining PaineWebber and helping it merge with UBS in 2000 – is that the four major Wall Street firms “continue to pay extra money to advisors for [sales of ] proprietary products and will be in trouble for this in the long term,” he explained. “You’re creating an unhealthy incentive.”
The focus of advisors as purveyors of financial insight and capabilities are especially important today, says Grano given the increasing complexity of the global markets and longevity. Beyond the advisors’ fiduciary responsibility, they “almost have moral responsibility” today to care for their clients’ needs, he added.
“If you’re a large organization looking at the advisor as nothing more than a distributor – not really as the component and marketing mix of advice and counsel – you’re going to lose your way,” he continued.
“I see advisors getting very upset and disenchanted – at least the ones I speak with – and they’ve moving to independent –contractor roles, which some refer to as RIAs, because they don’t see any value from the institution,” shared Grano, who is now head of the consulting firm Centurion Holdings. “That’s the institution’s fault, not the advisor’s.”
Recently, Sallie Krawcheck (left), head of Bank of America-Merrill Lynch’s wealth-management operations, said that she believes the breakaway-broker trend is over.
However, executives at independent firms – including Bill Van Law, who heads business development for Raymond James Financial – disagree. He saysthere were 56 advisors at the independent broker-dealer’s recent conference, including many from the wirehouse firms looking to break away. “Of the advisors recruited by RJFS over the last two years, more than 75 percent came from wirehouses or employee firms,” Van Law said in a May 3 interview.
“Because of the dissatisfaction of the better financial advisors, you see them leaving and going independent,” Grano said in a second interview Wednesday on CNBC. “Most of the firms look alike in their approach to the business – they’ve violated trust and good management in the last several years across the board and that has cost them a lot of credibility between them and their financial advisors. For clients, they say, ‘If you can’t manage your own finances, how can you manage mine?’ ”