"Eat what you kill." That has to be one of the all-time clichés of the brokerage industry. But it is as true as it is trite. Consider the case of the regional director, once a prestigious post for rising executives. In the past, the regional would call upon a branch, perhaps take a few of the top producers and the branch manager out for a steak, offer up encouraging words, some smart strategy and help smooth over some problems. The regional was, in effect, an emissary from headquarters in New York to the far-flung offices across the country. He was the ultimate rainmaker.
Today, the regional director is a marked man; it's not necessarily a role poised for extinction, mind you, but their ranks will be seriously culled. At least that's what some analysts and branch managers think (and some hope) is going to happen. Why? There are three reasons: technology, industry consolidation and cost control.
In September 2005, Merrill Lynch -- famous for its continual reorganizing -- cut in half the number of its regional directors from 10 to five. (For more, see Mother Merrill's Extreme Makeover.) And, since becoming head of retail brokerage at Morgan Stanley in February, James Gorman -- who left Merrill as head of its global private client group in June 2005 -- has dissolved half of Morgan Stanley's regional director positions, cutting its number of regional districts from eight to four.
While both firms declined comment, anonymous sources at each said the moves were primarily cost-cutting measures. "The job of regional director has traditionally been to energize the branch manager and to get more profit from the branch by measuring costs and advisor production," says André Cappon, president The CBM Group, a consulting firm. But that was then. Today, the home office in New York can monitor individual branches in Los Angeles and can examine its producers' production, product mix and other important information. "What's the purpose of having several layers of guys who are making half-a-million bucks?" asks Cappon.
"There's such a richness of data, tools and metrics that fewer layers of management are needed in a national firm," he says. "They can afford to develop management information that provides branch-office information to headquarters and allow them to micromanage from there." Large firms now have so many tools that one person can oversee at least twice the number of offices as in the past, Cappon says.
It's likely that other wirehouses will follow suit, says Guy Manuel, also of the CBM Group. "The industry has become increasingly Merrill-ized," he says. "James Gorman has a very strong analytical background and is viewed as a tremendous visionary." While no one at the other wirehouses would comment, Manuel insists, "it won't be long before we see these other firms following in Gorman's footsteps."
So, what does this mean to branch managers? "Business will be much more efficient, but colder," Cappon predicts. "It'll make firms more management-oriented and less about personal relationships."
While many branch managers we spoke to didn't seem to care -- that regional directors were too often preoccupied with their next step up the corporate ladder -- some did say that good regional directors were effective advocates. In the past, the best did help BOMs solve internal problems, acting as a pivotal liaison between the branch and home office. But, "The region[al] has become nothing more than the mouthpiece of the home office," says a five-year wirehouse BOM based in the southeast. "Regional directors are so close to senior firm management -- and have been brought into the corporate line to such an extent -- that they're out of touch with what goes on in the branch offices."
The agenda of the region is often at odds with the branch these days, says a New Jersey-based wirehouse BOM. "The branch supports the broker, and the region supports the firm," he says. "They aren't much help to us anymore."
Cappon agrees, saying, in his experience, "Unless they have a really great relationship, the loss of regional directors probably won't hurt BOMs at the wirehouses."
Allies at Small Firms
Many BOMs at regional and small firms still view their regional directors as a much-valued ally. Tim Nelson has been BOM of RBC Dain Rauscher's Charlotte, N.C., branch for three-and-a-half years. He never thought he'd be in the position had not Kim Jenson -- his regional director and the only woman to hold that position at her firm -- recruited him.
"I know the incredible pressure branch managers are under with enormous compliance issues -- on top of the worrying about recruiting and production." Jenson says. "My job is to do whatever I can to make lives easier as their roles get increasingly tough."
"My regional director is enormously valuable to me," Nelson says. "Any question I have, she makes sure to get me the answer. She is a critical liaison between our branch and the home office, and I wouldn't want to do this job without her."
Smaller firms have less money to invest in management systems, so, consequently, regional directors have much more of a role, Cappon says. "They really fill an important gap." But, he cites an interesting caveat: "It may not matter that much in the long-run. Regional and small firms are gobbled up so frequently by the national firms, I don't know how many will ultimately be left."