Photos: Bloomerberg

The number of advisors with the four wirehouse firms slipped about 2% in the past year to 52,987, according to their latest financial reports. Meanwhile, total assets rose about 15% to $8.3 trillion in 2019, as the major stock indexes improved 23% or more.

Morgan Stanley’s wealth unit is now down to about 15,500 from roughly 15,700 a year earlier, while UBS Americas is close to 6,550 vs. 6,850 in 2018. Wells Fargo’s headcount stands at some 13,500 vs. nearly 14,000 in the prior year. Merrill’s advisor group (excluding those with Bank of America’s Private Bank) decreased by 60 to 17,458 over the past year, including the Merrill Edge reps.

The headcount figure for the four wirehouses has “been diminishing every year, and going back to the financial crisis, it’s now dramatically lower,” said Danny Sarch, head of Leitner Sarch Consultants. “The trend is very clear,” Sarch added, “but it’s so hard to make a generalized statement [about this] given the lack of clarity there is around these figures.”

These firms and others can include anyone with a Series 7 license in their data, he points out, and then exclude these individuals in the overall advisor production figures. “When it comes to the advisor attrition being net up or net down or the number of advisors recruited in or retired out, it is not very clear,” Sarch said. “This lack of transparency makes me very suspicious.”

The headcount for UBS, for instance, includes advisors in Latin America. (Merrill recently said its advisor attrition was about 4% in 2019.)

The declining wirehouse headcounts “are partially due to the industry’s aging and shrinking salesforce,” said Mark Elzweig of the recruiting firm Mark Elzweig Co., who adds that Cerulli Associates’ data shows about a third of advisors could retire over the next decade.

In addition, the wirehouse headcount drop is a result of the exit of both UBS and Morgan Stanley from the Broker Recruiting Protocol, according to Elzweig, “and their new focus on selective upgrades to their sales force rather than broad-based new hires.” But the latest numbers “may cause that [approach] to change,” he says.

The falling wirehouse headcount “is a reflection of a failing business model and shows these firms are either unable or unwilling to adjust to the marketplace,” according to Sarch. “Every year, it looks like they are getting more rigid in their policies and procedures rather than more flexible,” he said.

“They build bigger and bigger walls because of the drive for short-term profits,” Sarch said. “But they train advisors to focus on long-term trends and not the short term when it comes to managing client assets — what irony.”

Meanwhile, “Cultural changes and bureaucracy are prompting more wirehouse advisors to move to regional and independent firms,” Elzweig said. “Given that firms have an aging salesforce, without an aggressive recruiting program, their headcount will [continue to] shrink. Will the increased productivity of those who remain make up for this? We will see.”

Developments at LPL

Like other firms in the advice business, LPL Financial recently reported its fourth-quarter and full-year results. But unlike many rivals, the largest independent broker-dealer also highlighted a long list of details both on the sources of its recent growth and on the strategies and programs that it expects to propel further expansion.

First, the latest key performance indicators: Its financial advisor headcount stands at 16,464 vs. 16,109 a year ago, a jump of 355; it added 115 net new advisors in the fourth quarter of 2019.

Total client assets are $764.4 billion vs. $628.1 billion a year ago; net new assets were $8.8 billion in Q4’19 vs. $5.9 billion in Q4’18. Assets from recruited advisors in Q4’19 topped $10 billion, bringing LPL’s full-year total to $35 billion. Advisors affiliated with the independent broker-dealer have an average of $46.4 million in client assets and about $246,000 in yearly fees and commissions — up 19% and 5% year over year, respectively.

President and CEO Dan Arnold, speaking with equity analysts in late January, said net new assets from existing advisors grew close to 4% in 2019 vs. about 2% in 2018.

The IBD reported fourth-quarter earnings of $1.53 per share, up 13% from Q4’18. Net income improved 5% year over year to $126.7 million, as revenues rose 10% to $1.45 billion. Here’s what the firm has in store for the future:

1. More ways advisors can join: As for future growth, the IBD’s “first strategic play involves winning in our traditional independent and institutional markets while also expanding our affiliation models,” Arnold said.

Turning to LPL’s latest affiliation model, its premium offering for RIAs — launched in Q3’19 — “has been well received and generated good feedback from prospective advisors,” according to the CEO. “We now have our first couple of committed practices, which we expect will join over the next few months, and we are encouraged by our growing pipeline of interested advisors.”

The IBD exec also said one affiliation model LPL is in the process of building is “focused just 100% on an RIA-only firm.” Overall, LPL plans to go to market with a new affiliation model in the second quarter and with another one “later this year,” Arnold said. “We are receiving good feedback with respect to the value proposition associated with those programs, … and … we feel good about the results from last year and our pipeline as we move forward.”

2. Race to zero: As for pricing, which the firm hopes will help its advisors stand out in the field, LPL has been adjusting its advisory platforms and transaction costs. In Q4’19, it introduced a no-transaction-fee ETF offering on its corporate and hybrid advisory platforms.

“In 2020, we are taking the same approach in light of the continued secular industry trends towards advisory solutions and lower retail trading commissions,” Arnold said.

3. Enhancing the client experience: The firm also intends to create “an industry-leading service experience that enhances our ability to attract and retain advisors,” he added. This effort includes “intelligent routing of their inquiries and case management for complex issues.”

Over the past two years, the CEO says, this focus helped the firm boost its advisor satisfaction level — as measured by Cogent Syndicated’s Net Promoter Score (or NPS) — by 45 points. In the fourth quarter, LPL tried out an interactive voice-response system and expanded the scope of its case management team to include all advisors.

4. More outsourcing methods: To help advisors run and grow their practices, LPL is moving to offer more outsourced business solutions, digitized workflows, advisor-focused capital solutions and lead generation, according to Arnold.

As for business solutions — including services like virtual CFOs — LPL “ended the year with 650 subscribers, which was up 500 over the year,” the executive said. “We see that as a really positive trend.”

Overall, he added, the IBD was “in that developmental phase, where we were continuing to build the foundation and the infrastructure to scale in a really thoughtful and effective way” in Q4 ‘19.

But LPL now is in “more of an operational phase where we are really focused on scaling … [a]nd we began to make that transition this year,” Arnold said. Plus, LPL is “seeing positive trends coming from those that are using these services today” and “seeing [the business solutions] help [it] attract new advisors.”

5. Giving advisors growth tools: The IBD is about halfway through its plan to automate advisors’ six primary workflows — the tasks that now take up about 80% of advisors’ time, LPL says. For instance, the firm has integrated some customer relationship management solutions and resources from Salesforce and Redtail into its platform.

In Q4’19, it integrated three financial planning tools used to turn prospects into clients — its own goals-based planning solution and resources from MoneyGuide and eMoney.

“We wanted to be better, and we have challenged ourselves to innovate new ways of which to help our advisors increase the growth of their practices,” Arnold said. “So this is where we are focused on business solutions as a lever to do that, digitizing workflows.”

In addition, he said, the new advisor capital solutions LPL is working on “are ways to go really deep to help advisors with tools that will help them transform how they operate their businesses and heighten the probability they are able to grow their same-store sales.”

6. Boosting retention: “If you look over the last two years, retention has gone up from 95% to 96.5%. That’s a good trend. There is good momentum there,” Arnold said.

Along with the IBD’s “transformation of our new service model,” he said, “[and] the baseline work we were already doing around enhancing our technology, improving policies and procedures, you end up, we think, with an interesting opportunity of which to improve and enhance retention over time.”

7. A one-two punch: “When you put all of those multiple orders together,” the CEO stated, “we are encouraged by the opportunities to continue to enhance our organic growth and improve … that [net new assets] capture over time.” Furthermore, the IBD still sees an attractive recruiting climate and “advisors in search of a higher level of capabilities that will help them run their businesses,” he said. “And so those trends obviously make up … what we would see is again a pretty solid environment.”

Ameriprise News

Ameriprise Financial has been on a recruiting tear in early 2020 with a string of announcements. The latest hires come as the broker-dealer announced that it ended 2019 with 9,871 advisors, down 60 from a year ago and 59 from Sept. 30. Still, its total client assets figure rose nearly 20% to $643 billion.

About two-thirds of its advisors are independent, with the rest working as employees. Their average yearly fees and commissions were $664,000 as of Q4’19 vs. $624,000 in Q4’18.

The father-son team of Norman and Michael Robbins just moved to Ameriprise’s employee channel from Cetera Advisor Networks in Boca Raton, Florida, where they work with about $234 million in assets. They spent the past four months at Cetera and the prior 16 years with Summit Brokerage Services, according to FINRA BrokerCheck.

Two teams with $257 million in total assets recently moved to Ameriprise’s franchise channel. Coming over from LPL Financial is the Flatiron Financial Group (with $150 million) of Bedford and Lincoln, New Hampshire, led by Rob Normandin Jr., and Troy Neily — both of whom have over 20 years in the business and spent the past 13 with LPL; the group includes advisors Robin Morrell and Sean Smalley.

Separately, Don DeJonge joined in Visalia, California, with $107 million, along with client service associate Shirah Hopper. DeJonge has 12 years of industry experience, including the past five with MML Investors Services.

Independent broker-dealer Morton Seidel, which has been in business in the Los Angeles area for some 95 years and works with $177 million in assets, has moved to Ameriprise’s franchise channel in Beverly Hills, California.

The team is led by veteran advisor Joan Seidel (49 years in the business) and husband Arnold Seidel (70 years as an advisor) — whose father founded the IBD in 1925; daughter-in-law and paraplanner Gina Seidel also made the move.

“People in leadership [at Ameriprise and] at the home office … are respectful of our longstanding history, and are committed to helping our clients reach their goals,” Joan Seidel said in a statement.

Many of the Seidel team’s clients are children, grandchildren and great-grandchildren of their BD’s original clients. “We’ve helped multiple generations of families prepare for retirement, manage inheritances and weather market events,” she said.

In the latest quarter, Ameriprise saw its revenues grow 3% year over year to $3.3 billion. But net income fell 14% from Q4’18 to $539 million, and earnings per share weakened 6% to $3.76. The Advice & Wealth Management unit expanded its total revenues 8% from a year ago to $1.74 billion. Pretax operating earnings rose 5% to $387 million.

Wells Fargo Update

The Office of the Comptroller of the Currency issued fines of $37.5 million against five former Wells Fargo executives and reached settlements of $21 million with ex-Chairman and CEO John Stumpf and several other former members of the bank’s operating committee.

Stumpf is barred from the business and will pay a $17.5 million fine. Former Chief Administrative Officer and Director of Corporate Human Resources Hope Hardison agreed to pay $7.5 million, while ex-Chief Risk Officer Michael Loughlin is set to pay a $1.25 million fine.

The biggest fine for the former bank execs affects Carrie Tolstedt, who led Wells Fargo’s community bank during the fake-accounts scandal. She now faces a $25 million penalty, but it could be increased, the OCC says. Tolstedt and four others are fighting the allegations and have not reached a settlement.

The news comes more than three years after the bank agreed to pay a fine and $185 million settlement with the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency and Los Angeles City Attorney’s Office over 2 million-plus client accounts and credit cards that were potentially unauthorized.

The charges allege that the executives “failed to adequately perform their duties and responsibilities, which contributed to the bank’s systemic problems with sales practices misconduct from 2002 until October 2016,” the OCC explained.

“The misconduct of these individuals allowed the practices to continue for years, affecting millions of bank customers and thousands of lower level bank employees,” it said, adding that ex-community banking risk officer Claudia Russ Anderson made false and misleading statements to the OCC and “actively obstructed the OCC’s examinations of the bank’s sales practices.”

Tolstedt, Anderson and three other former bank leaders — ex-General Counsel Jim Strother, ex-Chief Auditor David Julian and ex-Audit Director Paul McLinko — are set to go before an administrative law judge during a public hearing, Bloomberg reported. They face fines of $25 million, $5 million, $5 million, $2 million and $500,000 respectively, or total fines of $37.5 million.

“Throughout her career, Ms. Tolstedt acted with the utmost integrity and concern for doing the right thing,” said Enu Mainigi, her lawyer at Williams & Connolly in the report. “A full and fair examination of the facts will vindicate Carrie.”

“At all times, Mr. Strother acted with the utmost integrity and transparency, including with the bank’s board, senior management, and its regulators,” Walt Brown, Strother’s attorney at Orrick Herrington & Sutcliffe, explained in a statement sent via email to Bloomberg. “The OCC’s charges against Mr. Strother are false and unfounded, and he intends to vigorously defend against them.”

Current Wells Fargo CEO and President Charlie Scharf told bank employees in a note: “The OCC’s actions are consistent with my belief that we should hold ourselves and individuals accountable. They also are consistent with our belief that significant parts of the operating model of our Community Bank were flawed.

“At the time of the sales practices issues, the company did not have in place the appropriate people, structure, processes, controls, or culture to prevent the inappropriate conduct. This was inexcusable. Our customers and you all deserved more from the leadership of this company,” Scharf explained.

The bank will consider “further action” and will make no remaining compensation payments “to these individuals while we review the filings,” he said. “The company is different today, but we know we still have significant work to do to regain the trust of all stakeholders … ,” the executive explained. “We must all dedicate ourselves to ensuring that such failings never again occur at Wells Fargo.”