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January 01, 2007 at 02:00 AM
The stocks of the largest brokerage firms (Merrill, Morgan and UBS) have outperformed the S&P 500 in 2006, thanks to some key performance issues, experts say. Furthermore, the large firms are expected to continue the strategies they’ve put in place recently in the year ahead, which should mean more good news for the wirehouse broker-dealers.
Research asked Chip Roame, head of Tiburon Strategic Advisors, to look into the crystal ball and share what he expects in 2007, drawing largely from lessons learned in 2006.
o Merrill Lynch: The wirehouse sold its asset-management operations to BlackRock and took a nearly 50 percent stake in the money manager in ’06. This new relationship, says Roame, gives Merrill some distance from its products and “helps their [product] positioning. BlackRock is one of the best partners they could have found.”
What’s ahead? “They’ve been aggressively pushing advisors down the fee-account path, and they’ll likely do more of this,” he explains. “They have the best set of holistic services, which forms the basis of Total Merrill, and they will likely seek to continue to position their advisors as broader wealth managers. They will also use their newfound quasi-independence to sell their investment products through third-party channels.”
o Morgan Stanley: “They’ve done a great job cleaning up their brokerage ranks,” Roame shares. And the brokerage “will make more big efforts to increase the productivity per advisor, which generally lags that of Merrill and Smith Barney.”
Also, the firm may buy up more money-management firms to create additional proprietary products. “They likely bid in the BlackRock sweepstakes, and I would not be surprised to see them do a similar deal with State Street or some other firm.” On the flipside, he predicts that the former Dean Witter share of the brokerage could be sold over the next few years, but not the high-net-worth business.
o Smith Barney: “They’ve already been moving advisors along the fee-account path,” Roame notes, after unbundling the money-management side of the business — through the sale of the company’s funds to Legg Mason in order to grab that firm’s brokerage business in 2005.
Next comes the leveraging of more Citigroup/Citibank capabilities to “get financial advisors to be more holistic service providers for their clients,” he says. This means working on deposits, loans and trust accounts — three traditional bank-delivered products.
The brokerage and bank operations are being combined in some locations, such as Boston, and the computer systems are also reportedly set to come together in the coming months.
