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Wirehouse Performance Takes Divergent Paths

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With the latest earnings results, the varied strategies and performance of the remaining — and transformed — wirehouse firms are becoming clearer though not entirely consistent.

And, recruiting wars and revised retention deals are playing a very significant role, experts say.

“Deals are pretty good these days, and brokers are really paying attention,” says Carri Degenhardt-Burke of Degenhardt Consulting in Jersey City, N.J. “The upfront packages are going from about 85 to 145 percent of yearly production. This is decent, and near where we were last year – though the upfront bonus went as high as 160 percent in 2009.”

There are a lot of bogies in the back, meaning packages that total 165 percent to 330 percent, she explains. “For larger advisors, they always want to listen to those offering 330 percent, and this size deal increases the odds that an advisor will move to a rival firm offering that,” adds Degenhardt-Burke.

Advisors might go to a regional for different reasons, including a higher payout.

The 330 percent deals are an important development, according to the recruiter. “Merrill Lynch had such packages a few years ago and then stopped offering them. Merrill is now at about 220, UBS has just raised their deal – which starts at 140 percent upfront,” she notes.

Morgan Stanley Smith Barney

Morgan Stanley says its Global Wealth Management group — which includes the operations of Smith Barney — delivered net revenues of $9.4 billion in 2009 with client assets of $1.6 trillion and 18,135 global representatives as of December 31, 2009. (This represents an average of $88 million in assets per FA.)

Building on the Morgan Stanley Smith Barney merger, completed on May 31, 2009, Morgan Stanley now has roughly 10,000 more FAs than the 8,356 it had a year ago. The most recent total of 18,135 — however — is down a bit from the 18,160 that MSSB had as of September 30, 2009, and the 18,444 it had on June 30, 2009.

Trailing-12-months’ revenue per advisor is now $692,000 vs. $662,000 at the end of the third quarter in 2009 and $603,000 at the end of 2008, before the merger with Smith Barney.

Morgan Stanley says that 70 percent of client assets are held by clients with over $1 million being managed by the broker-dealer. Fee-based assets represent 24 percent of total assets.

Assets per advisor are now roughly $86 million, up from $84 million in September 2009 and $66 million in December 2008. Net new assets stood at -$4.7 billion in December 2009 vs. -$8.8 billion in September 2009 and -$7.4 billion in December 2008.

For all of 2009, the Morgan Stanley’s Global Wealth Management Group had pre-tax income from continuing operations of $559 million, compared with a pre-tax income from continuing operations of $1.17 billion last year.

Morgan Stanley is “in a different place than Bank of America,” says Chip Roame, head of the consultancy Tiburon Strategic Advisors. “Their value proposition to both clients and advisors is their investment bank model, and my guess is that they will lift average production fairly quickly to meet that of Merrill Lynch.”

Merrill Lynch

Bank of America-Merrill Lynch says its financial-advisor force (aka “the thundering herd” of brokers) is stable at 15,006 as of the end of 2009. This does put the total number of FAs down about 800, though, from the 15,882 it reported as of March 31, 2009.

“In Global Wealth and Investment Management, the financial advisor network of more than 15,000 was up slightly from the third quarter as the retention rate stood at the highest level in recent years and the company increased hiring, training and development of new advisors,” the company explains.

In terms of trailing-12-month sales or production, Merrill advisors are now at $830,000 on average for the fourth quarter of 2009 and $817,000 for the full year 2009.

Client balances in Merrill Lynch accounts total $1.43 trillion, representing an average $95 million per advisor.

The GWIM unit, which includes Merrill and U.S. Trust, is now led by Sallie Krawcheck, formerly of Citi/Smith Barney. U.S. Trust has 3,957 advisors vs. 4.473 at the end of 2008. Client balances total $316 billion.

For the full year 2009, Bank of America says Merrill Lynch Global Wealth Management net income grew 22 percent to $1.5 billion, out of total net income for the Global Wealth and Investment Management unit of $2.5 billion.

Net revenue for the GWIM unit more than doubled to $18.1 billion in 2009 on higher investment and brokerage service income from the addition of Merrill Lynch, a $1.1 billion gain related to the BlackRock equity investment and the lower level of support for certain cash funds.

For the fourth-quarter, BofA’s GWIM unit grew net income $816 million to $1.3 billion, compared with the same period last year as revenue increased to $5.5 billion. The increase in revenue was driven primarily by the Merrill Lynch acquisition and the gain related to the BlackRock equity interest, according to BofA.

Merrill Lynch accounted for $446 million of net income and $3.1 billion of net revenue in the fourth quarter.

While Morgan Stanley may be hoping to catch up to Merrill in terms of average production (or sales) per advisor, Bank of America is playing catch up too in terms of advisor headcount. It is reportedly poised to add as many as 2,000 advisors to its global wealth management division over the next 12 months, according to a recent news story.

The focus is said to be on the training of new brokers, which would save the unit some money, rather than engaging more aggressively in the expensive recruiting wars now going on between the wirehouse, regional and other firms.

“Merrill Lynch is returning to its roots. This is a wise move,” says Roame, who is hosting the next Tiburon CEO Summit in New York on April 14 and 15. “The firm was always the best at training and integrating rookies. They moved away from this in recent years. I see it as a positive development that they are returning to their original model!”

Merrill’s FA force now includes about 15,000 advisors vs. 16,000-plus at the time of the BofA-Merrill Lynch merger was first announced in September 2008. In March 2009, the total number of FAs was 15,882.

“In Global Wealth and Investment Management, the financial advisor network of more than 15,000 was up slightly from the third quarter as the retention rate stood at the highest level in recent years and the company increased hiring, training and development of new advisors,” the company said as part of its fourth-quarter 2009 earnings release.

On February 4, Attorney General Andrew M. Cuomo of New York sued Bank of America and its former chief executive and chief financial officer over its failure to disclose a multibillion-dollar loss and big bonus payouts at Merrill Lynch before shareholders voted on the merger in December 2008, according to various press reports.

Wells Fargo

With an advisor force of comparable size, Wells Fargo says its brokerage operations, in-bank and other advisors total 14,961 as of December 31, 2009.

This represents a decline of 182 advisors since September 30, 2009, when there were 15,143 FAs. About 11,000 of these advisors are in the Wells private-client group as of the fourth quarter, down from about 11,200 in the third quarter.

Roughly 2,800 financial advisors operate in banks. (And Wells also has more than 6,000 licensed financial specialists in the banks as well.)

Despite the slight decline of its advisor force, the company says it was experiencing “solid financial advisor recruiting during the [fourth] quarter as brokers who have joined the firm are over two times more productive than those who have left the firm.”

Wells’ recent FA tally puts it behind Morgan Stanley Smith Barney and Merrill Lynch — giving it the number three slot, ahead of UBS.

Wells Fargo Advisors has some $1.1 trillion in assets under management, or roughly $74 million per FA.

The wealth, brokerage and retail unit had net income of $131 million in the fourth quarter vs. $244 million in the third. Revenue was $2.9 billion, down slightly from the previous quarter “as higher asset-based revenues were offset by lower securities gains in the brokerage business.”

The retail brokerage business reported that its managed account assets grew $11 billion, or 6 percent, including net inflows of $8 billion.

Wells Fargo Advisors recently expanded its deferred-compensation plans and offered FAs in its private-client group a bonus of up to 2 percent of total yearly sales (or production) if they hit certain targets for net new client assets.


UBS’ Wealth Management Americas unit reported a pre-tax profit of 178 million Swiss francs (CHF), or about $170 million, for the fourth quarter of 2009, up from CHF 110 million, or $103 million, in the third quarter.

For the year, the unit had a pre-tax profit of CHF 32 million, or $30 million, compared with a pre-tax loss of CHF 823 million, or $770 million, in 2008.

The number of financial advisors decreased at UBS Americas by 202, or 3 percent, to 7,084 “as a result of voluntary departures, slower recruiting and the reduction of 74 personnel in connection with the sale” of some branches to Stifel Nicolaus.

UBS’ Wealth Management Americas unit had further asset outflows in the fourth quarter of 2009, to the tune of CHF 12 billion, or $11.6 billion, vs. outflows of about CHF 10 billion, or $9.7 billion, in the third quarter. “These were affected by financial advisor attrition and limited recruitment of experienced financial advisors,” the company explains. “Invested assets per financial advisor have increased during the quarter and remain amongst the highest in the industry.” With client assets of CHF 737 billion, or $689 billion, this gives each UBS advisor an average of $97 million in AUM (vs. $95 million at Merrill, $88 million at Morgan Stanley and $74 million at Wells Fargo). In addition to hiring former-Merrill Lynch executive Bob McCann in the fall, UBS recently began offering its recruiting prospects as much as 280 percent of their annual sales or production. In a January 19 memo, in which McCann describes his effort in forming a “Renewal Team,” McCann says that leaders are being hired to make changes “in how we interface with our clients and financial advisors, with particular focus on streamlining processes, increasing efficiencies and driving the business forward.” The new hires and leadership shifts include Bob Mulholland, formerly of Merrill Lynch, who is now head of UBS Americas’ Wealth Management Advisor Group (replacing Jamie Prince). UBS finds itself in quite a tight spot, according to Roame. Their value proposition “needs to play to their private-banking parentage,” he notes. “But that is a damaged story right now, so UBS has a difficult time standing out.” With the size of their advisor force now less than half that of Merrill and Morgan Stanley, they face a competitive disadvantage. “My guess is that UBS has another new strategy within three years,” concludes Roame.