Will First Republic Advisors Flee to Bigger Firms?
First Republic advisors are getting calls from rivals as SVB's failure shakes their firm, a lawyer says.
Wirehouses and RIA firms could be among the key beneficiaries as the troubles affecting First Republic Bank and Silicon Valley Bank make the biggest firms look more appealing, at least in the near term, advisor recruiting experts told ThinkAdvisor on Monday.
“The RIAs and the wirehouses are already reaching out to the wealth advisors at First Republic and also at SVB” to recruit them, said Patrick J. Burns, managing attorney of a law office in Beverly Hills, California, that specializes in securities and investment advisors.
First Republic’s troubles stem from concerns about the financial health of regional banks, especially those doing business with technology companies in the San Francisco Bay Area, in light of the collapse on Friday of Silicon Valley Bank. Investors have fled First Republic’s stock, which was trading down 62% at $30.89 as of 2 p.m. Monday.
For advisory firms, being the center of negative news or “even rumored to be at risk” is enough to “freeze any in-process recruiting for any advisor,” said compensation consultant Andy Tasnady, managing partner of Tasnady Associates.
Also, “clients would be hard to convince to follow” their advisor if they move to a risky firm, he told ThinkAdvisor in an email.
Moving clients to a firm “in the news as a risk will be extremely difficult until the ‘all clear’ sign [is] given,” he added. “Even then, brand damage may dampen client transfer as well as new client sales.”
Thus far in 2023, First Republic Private Wealth Management has recruited four teams with a total of 31 individuals from Morgan Stanley, Merrill and BNY Mellon. Its wealth unit worked with assets of $271 billion as of Dec. 31. The unit’s fees last year were $877 million, representing 15% of the bank’s overall revenue for 2022.
The “flight to safety for clients and advisors will benefit” firms with the largest and safest reputations, “at least in the short run,” until the worries around smaller firms have faded, Tasnady explained. He pointed to the four wirehouses in particular — Morgan Stanley, Bank of America-Merrill, UBS and Wells Fargo — as potential beneficiaries.
While the stocks of some large firms like Wells Fargo and Charles Schwab were down Monday, it is likely “just another temporary bad news wave” unless long-term trouble is uncovered at the firms, he said.
On Sunday, First Republic issued a statement about its financial condition, noting that it now has some $70 billion in unused liquidity to fund its operations. “This excludes additional liquidity First Republic is eligible to receive under the new Bank Term Funding Program” announced by the Federal Reserve, it added.
Too Soon to Say
However, it is just “way too soon to tell” if wirehouses, RIAs or any other firms will benefit on the recruitment front because “recruiting takes months,” argued Danny Sarch, president of Leitner Sarch Consultants.
When it comes to wirehouses specifically, he told ThinkAdvisor by email: “Large wealth management teams can’t move instantly. It’s too much work.”
Meanwhile, “if there are [advisor] teams scheduled to start imminently, I’m guessing they would delay,” Sarch said. He added: “First Republic does not custody their wealth management assets, and is also way more diversified than SVB.”
(Photo: Bloomberg)