From the May 2017 issue of Investment Advisor • Subscribe!

Wirehouses Roll Out New Structures and Strategies

Merrill Lynch announces latest reorganization and ad campaign; UBS names an SRI executive; and Morgan Stanley settles a compliance matter

One month after telling its “thundering herd” of advisors that it plans to consider “options” for at least some clients who might benefit from commissions in retirement accounts, Merrill Lynch has restructured its wealth management organization and rolled out commercials to boost its advisor-client relations.

In a recent memo, Andy Sieg, head of Merrill Lynch Wealth Management, explained to the group's 15,000-plus registered reps that it is reducing its business structure from 10 divisions to six. Sieg, who took the reins at Merrill from John Thiel on Jan. 1, also acknowledged the input advisors had given.

“It's been great to have the opportunity to meet with more than 3,000 of you at town halls in a dozen cities so far this year,” Sieg explained. “I called it a ‘listening tour.’ I wanted to hear directly from you what we could do to accelerate growth among existing clients and with new ones.”

According to Sieg, the issue that has been top of mind for many advisors is capacity — or “the loss of it” — and how the firm can “free up time and energy better spent on client acquisition or in the quality [of] service [to] clients.”

By shrinking the number of divisions, Merrill aims “to make the organization feel like a smaller, more tightly integrated firm,” he said. The executives in charge of these six groups are as follows:

  • Northeast, Bill Lorenz

  • Mid-Atlantic, Lindsay DeNardo Hans

  • Southeast, Eric Schimpf

  • Midwest, Paul Lambert

  • Texas-Mountain South, Vince Fertitta

  • West, Jeff Markham

“We’re going to focus on responsible growth by bringing the firm closer to you and the local markets, and by leveraging the unique resources of Bank of America and Merrill Lynch for all of our clients’ financial needs,” Sieg explained.

What's driving these organizational and managerial shifts?

“There's a new guy in charge,” said recruiter Danny Sarch of Leitner Sarch Consultants. “It's more a story if they don't do a reorganization. In other words, it's expected.”

According to industry consultant Chip Roame, head of Tiburon Strategic Advisors, “I think the bigger message here is in [Merrill's] self-admitted need to streamline and boost productivity. The wirehouses feel bloated to me, with dozens of executives holding senior-sounding titles.”

In addition, Merrill and its wirehouse rivals continue to push for more productivity from their financial advisors — not on adding or recruiting more advisors, but raising average fees and commissions. “More productivity seems to be the repetitive message,” Roame said.

Merrill Lynch's total advisor force had average yearly fees and commissions of $983,000 as of Dec. 31, 2016, while its veteran FAs had annual production of $1.25 million. This compared with average production of $1.01 million at Morgan Stanley and $1.17 million at UBS Americas.

Advisor Ads

Merrill Lynch also launched a nationwide advertising campaign this spring with a focus on the client-advisor relationship. The first ad in the print, digital and radio series has the tag line, “We’re bullish on the future — yours.”

The ad describes a world undergoing deep shifts in technology, politics and demographics. “It […] requires a different method of investing: one that doesn't focus first on stocks and markets, but on your life and priorities,” the campaign states.

“Through honest conversations, we’ll find out what you want your future to look like, and develop a strategy together to help make it happen. […] You don't meet clients’ future goals by living in the past,” it concludes. “So we’re staying focused on the future. Yours.”

“I like the focus on identifying all the change,” said Roame. “I think prospects and clients feel that change, and it helps to say, ‘We feel it, too.’”

Another plus, according to the consultant, is the ad's emphasis on clients’ lives and priorities over stocks and markets. “I would add that this identification is long overdue, but I like it,” he said.

For his part, Sarch views the ads as not hurting and probably helping “make the brand better for the investing public,” he said. “And they can be seen as positive […] for those who want the Merrill Lynch brand to resonate more” with current and potential clients.

The ads come at a bit of an awkward time for the wirehouse, the recruiter said, since it has pulled back a bit from its fee-only approach.

“Merrill Lynch was way out in front and went very public” with a pro-fiduciary approach to the new (and now delayed) Department of Labor standard, Sarch said. But with pushback from some advisors and clients alike who want to keep commissions, the firm looks like it has opted to “backpedal to some degree.”

UBS Taps SRI Exec

UBS Wealth Management Americas has named an executive to lead its efforts in the popular area of socially responsible investing: Stephen Freedman is now head of the firm's Sustainable Investing Solutions effort, charged with expanding the wirehouse's SRI products and services.

“He will also promote the understanding of sustainable investing concepts and solutions among financial advisors in order to develop new business and help clients pursue their sustainable and impact investment goals,” UBS Wealth Management Americas said in a statement.

Worldwide, UBS’ clients have about 35% of their investable assets in sustainable holdings — $972 billion, up from about $932 billion in 2015.

According to the Global Sustainable Investment Alliance, assets tied to sustainable and responsible investment strategies totaled $23 trillion in 2016, a 25% increase from 2014. These investments now account for 26% of all professionally managed assets globally.

“Sustainability is a cornerstone of our business, and I look forward to […] scaling up sustainable investing offerings across all asset classes and product areas,” explained Freedman in a statement. UBS is “uniquely positioned to mobilize more private wealth toward sustainable investing solutions with respect to causes that our clients care about, as well as helping to meet traditional return-based investing needs.”

In the Americas, UBS has been working with venture capital fund Rethink Impact to help raise at least $110 million; half of these funds came from UBS clients, the firm said. At the World Economic Forum's meeting earlier this year, UBS pledged to direct at least $5 billion of client assets to sustainable investments over the next five years.

Freedman, who joined UBS in 1998 as an economist and policy analyst in Switzerland, reports to John Amore, head of Wealth Management Advice for UBS’ Americas business, which includes about 7,000 wealth advisors.

Morgan Stanley Settles Securities Lending Issue

Morgan Stanley agreed to settle an issue and pay Massachusetts regulators $1 million over programs in which some 30 financial advisors encouraged clients to open securities-based lending accounts at an affiliated private bank.

The Massachusetts Securities Division says that from Sept. 1, 2013, to April 30, 2015, Morgan Stanley Smith Barney placed “particular emphasis on securities-based lending, including a form of securities-based loan known as a portfolio loan account.” These accounts let Morgan Stanley clients borrow money against the value of securities in their investment accounts, with the securities serving as collateral for the loan.

According to the state's order, Morgan Stanley's focus on securities-based lending “quickly paid dividends.” In 2013, 9% of Morgan Stanley's Wealth Management clients had a securities-based loan with the firm. By 2014, that percentage was 12%. And, by the third quarter of 2015, 15% of clients had a securities-based loan at Morgan Stanley.

“Morgan Stanley is pleased to resolve this matter with the Massachusetts Securities Division. The order contains no finding of fraudulent activity or that any client took a loan that was unsuitable or unauthorized,” the company said in a statement.

When Massachusetts Secretary of the Commonwealth William Galvin first raised the matter of the sales contests in a complaint in October 2016, he said they entailed “dishonest and unethical conduct” and “created a material conflict of interest [that] violated the firm's fiduciary duty.”

In the 24-page order released on April 10, the state laid out specific details: In 2014, for instance, advisors could earn net awards of 35 to 50 basis points of banking and lending growth if they hit certain thresholds; they also could be compensated through earnings for their business development allowances (to cover client entertainment, seminars, marketing materials, etc.). Sales assistants received $50 per processed application for a portfolio loan account.

An advisor with gross fees and commissions in the prior year of between $2.5 million and $5 million could make up to $15,000 in the BDA, plus $5,000 through the loan incentive program.

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