WealthManagement Magazine

It's in the Bank

Eric Hernandez, a financial advisor at UBS Securities, one day realized that he just couldn't make another cold call. For Hernandez, who had been with UBS for five years, and with Prudential Securities four years before that, the life of a wirehouse broker had become more grueling and less rewarding with each passing year. After 2000 to 2001, it became increasingly difficult to bring in the level

Eric Hernandez, a financial advisor at UBS Securities, one day realized that he just couldn't make another cold call. For Hernandez, who had been with UBS for five years, and with Prudential Securities four years before that, the life of a wirehouse broker had become more grueling and less rewarding with each passing year.

“After 2000 to 2001, it became increasingly difficult to bring in the level of assets one needed to make a living,” he says. With the stock market in free fall, contacting prospective investors was made more difficult by such obstacles as the “Do Not Call” federal legislation. Hernandez had to scrap with fellow reps for unpromising leads, and he began wondering about life outside the wirehouse: Would it make sense to take a chance and move to — horrors — a bank brokerage?

For most wirehouse brokers, such a move would be considered a self-inflicted demotion — like leaving the New York Yankees for the Toledo Mud Hens. But a number of wirehouse veterans who have made the move recently say that Wall Street's perception of bank brokerages is stuck in the past, and that the best bank brokerages have become much more competitive in terms of production, assets and compensation. Of course, bank brokerages are still, by many metrics, the poor relations of their wirehouse rivals, but there are signs of life in bank brokerages.

Taking the Plunge

Hernandez did take that plunge. Seven months ago, he moved to Wachovia Securities, where he is now a vice president of investments in Wachovia's investment services group — one of the roughly 2,500 licensed financial advisors who cover Wachovia's bank branches. His only regret, he says, is that he didn't move sooner.

For one thing, cold calling is part of the past. Hernandez, when he doesn't receive leads from Wachovia's bankers, can simply access Wachovia's massive databases of prospective clients for leads. His production, which he declined to divulge, has doubled since his UBS days. Further, he has far fewer colleagues in his region than a competing wirehouse would: There are about 27 FAs who cover Wachovia's branches in New York and Connecticut, Hernandez's turf.

“Coming from a wirehouse, you had to fight tooth and nail just to get one account,” Hernandez says. “Even if a broker left the firm, how much in assets are you going to inherit with 80 other brokers vying for them? But here we get the lead or a referral from the bank side almost every week. The level of assets you have control of is tremendous compared to what the average wirehouse has.”

Executive recruiters and bank brokerage officials confirm that a movement of reps from wirehouses to bank brokerages is well under way. Tiburon Strategic Advisors, a consulting firm in Tiburon, Calif., estimates that there are currently 61,000 “front-line” bank brokers today — that is, pure investment advisors. That figure is in striking distance of the roughly 76,000 wirehouse brokers. (The total number of bank officials with Series 7 licenses is far greater — in the 200,000 range.) And the gap is narrowing in other areas — payouts at wirehouses are roughly 42 percent to 45 percent, while bank brokerages can top out at around 40 percent for high-end producers, according to a 2004 survey by Kenneth Kehrer Associates.

Over the past few years the difference between a Wall Street-based wirehouse, like Merrill Lynch and Bear Stearns, and a top bank brokerage, like Bank of America or Wachovia, has all but vanished, says Jin-Chul Kim, an analyst at Financial Insights in Framingham, Mass. The only trump card left to wirehouses had been prestige: Wirehouse brokers have always believed they attracted more sophisticated clients and had more sophisticated financial products in their quivers. That's beginning to change at the top end of bank brokerages, at least. The traditional Street view of a bank brokerage rep “was of a guy in a polyester suit who couldn't make it at Merrill Lynch,” says Mindy Diamond, head of Diamond Consultants, a Chester, N.J.-based recruiter and a columnist for this magazine. That is changing, Diamond says, noting that she routinely places wirehouse reps at bank brokerages now.

One reason: Bank brokerage reps are finally having success winning high-net-worth banking clients. “As more bank clients start retiring, you have the potential for a humongous number of internal referrals. A bank broker is in the catbird seat for these,” says Charles “Chip” Roame, head of Tiburon Strategic Advisors. “You are starting to see a blended model — there used to be a big black line between the bank broker and the full-service broker. That's not there anymore.”

To be sure, there is still a chasm between a major wirehouse like Merrill Lynch, with $478 billion assets under management, and a regional bank brokerage like U.S. Bancorp Asset Management, with $122 billion. Wirehouses still retain their edge in terms of volume and quality of asset types and clients; no one disputes that. The big change for bank brokerage is at the top — the “hybrid” bank brokerages like Wachovia and Bank of America (whose brokerage arm, Banc of America Investment Services, is part of BofA's Wealth and Investment Services division, which has $440 billion in assets under management). These top bank brokers now have the ability to challenge wirehouses at their own game, and are luring reps over with just that promise.

Take Allen Saunders, a financial advisor at Banc of America Investment Services. Saunders, who moved early this year from Merrill Lynch, says the difference in the volume and quality of clients has been dramatic. BofA's Premier Banking and Investments group, where Saunders now works in the New York City office, has increased its total balance (deposits, loans and brokerage assets) to more than $200 billion this year, compared with $98 billion in 2002. The group's main strategy is to create teams of bankers and reps who aim for consumers who have between $100,000 and $3 million in deposits, lines of credit and loans at the bank. Each team draws up financial plans free of charge for these clients.

Nicolas Donarsky, a rep who moved to BofA from Prudential Securities, says his production has increased since he switched to the bank brokerage side (both Donarsky and Saunders declined to give specifics). Donarsky says his clients have seen no change in service, either. “Everything we were able to offer at our previous firms we can offer here, and more,” he says.

Analysts agree that the perception that going to a bank brokerage would limit a rep to only a handful of mutual funds and annuities is no longer valid, as banks have been pushing to offer a bevy of new products. “There is no question the multiproduct line, multichannel, multiaccount-based relationship is important to all firms now, but banks have a bigger stake,” Kim says.

Divisions and Drawbacks

That said, not all bank brokerages are created equal. Even wirehouse reps who made the transition over to bank brokerages say that there is a vast difference between a top-ranked bank brokerage and a regional bank that throws in brokerage at its branches.

“Some bank brokerage programs still really limit what you can do with the client — typically they have some structured products, a couple of mutual funds, a couple of annuities and that's it. You don't have the latitude to manage the assets like you would at a UBS or a Smith Barney,” Hernandez says. “What made Wachovia different is that they are synonymous with both wirehouse brokerage and also banking.”

Because of this perception, Hernandez was able to bring over the great majority of his UBS clients, with the exception of his hedge fund clients (which UBS insisted on keeping), to Wachovia. A move to a more traditional bank might have cost him more clients, he reckons. “I think it would've been a hard sell to convince clients they would get the same level of service and a broader variety of products,” he says. “But in Wachovia, even though I'm now sitting upstairs in a bank, it wasn't a bank sell at all.”

Saunders agrees that the gap between a BofA and a Merrill is one more of perception than reality. “The biggest misconception is that the platforms are not alike — well, they clearly are.” Bank of America, by far the largest of the top 10 bank brokerage programs, according to Bank Insurance Market Research Group, with over 2,000 Series 7 brokers in its 5,800 bank branches, is still way below, say, Merrill, with its 14,420-strong financial advisors.

Kim points out that many brokers may still find banks alien. For one, the job can be more isolating. A wirehouse broker could go from a crowded room jostling with reps passing on rumors to a quiet bank in which most of their colleagues are responsible for mortgages or checking accounts. Further, top management is key. Both BofA and Wachovia reps say their managers are the equal of what they had in a wirehouse, but the further a rep goes down the ladder into regional banks, the less sophistication they may encounter.

Top 10 Bank Brokerage Programs in 2004
2004 Investment Income* Bank State No. of Series 7 Brokers No. of Bank Branches 2004 Revenues Per Branch
(in millions)
$1,352.69 Bank of America N.C. 2,200 5,800 $233,000
$574.00 Wachovia N.C. 1,250 3,255 $176,000
$485.36 J.P. Morgan Chase N.Y. 1,166 2,300 $211,000
$262.92 U.S. Bancorp Minn. 450 2,350 $112,000
$249.38 Wells Fargo Calif. 1,100 3,664 $68,000
$158.12 Washington Mutual Wash. 539 1,940 $82,000
$147.53 SunTrust Banks. Ga. 450 1,715 $86,000
$128.86 Fifth Third Bancorp Ohio 215 1,000 $129,000
$87.35 Citizens Financial Group R.I. 180 1,600 $55,000
$87.20 Citigroup N.Y. 800 3,000 $29,000
* Revenues (not sales) from mutual funds and annuities in millions of dollars based on analysis of FDIC and OTS data in 2004. Table contains additional data compiled by the Bank Insurance Market Research Group. Only retail bank programs are included.
Source: Singer's Annuity & Funds Report (singerpubs.com)

However, money is the ultimate reward. Hernandez says that he is now doing close to double the business at Wachovia than he did when he left UBS. “The payout here is more than what I was making at UBS for the same level of production, and there is a lot more production here. Everything being equal I'm better off here,” he says.

It's enough to make a former wirehouse rep an evangelist for a bank. In August alone, Hernandez added $1.5 million in fee-based new business, all leads he received from Wachovia's banking side. “I tell my friends at wirehouses that that is a common thing. It's not a fluke but the norm. They just don't believe it,” he says. But a growing number might decide to make a phone call to a bank brokerage just to be sure.

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