Humor me with a bank/ria question

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Nov 25, 2009 10:44 pm

First, let's get the pleasantries out of the way: banks suck, bank brokers are only good for handing out dog biscuits though the drive through window, and I have to make this quick because I have a Christmas Club savings account goal to hit.  Hopefully that will preempt some of the usual backlash, but somehow I doubt it...

I have a conceptual question.  Most/all banks have a track record of buying up some kind of brokerage house and dumbing it down to the point where the most seasoned of advisors is handcuffed by the rules which are set up to protect the bank from the freshest series 6/life licensed kids selling things they don't understand.  In the opinion of those around here who are obviously successful at the primary function of providing advice/management for clients, what would it take for a bank to get it right?  If a bank can buy a brokerage, why can't it set someone up as an RIA, maybe similar to the LPL 60/40 arrangement, and allow for discretion?  There are obviously plenty of talented people who are willing to work for an LPL outfit and give up 40% of their revenue for the support structure, but not willing to give up 60-65% in exchange for bank referrals.  Is there a regulatory reason that would prevent this?

 

Nov 26, 2009 9:48 am

Here is an example where a bank bought an existing RIA (Hester Capital Mgt) and incorporated it into their Private Bank:



http://www.plainscapital.com/about-plainscapital/Pages/index.aspx

Nov 26, 2009 11:21 am

I think it could work if management could get on the same page, but that is nearly impossible. The reason FA's don't want to be in banks is because of the "banking" BS. The personalities of advisors who are trying to build a business and bankers who want to sell credit cards until they find a better job is completely different and that is where the problem is. I think it works much better with a smaller bank because there aren't many layers that need to be "convinced" about the benefits of offering investments.

Nov 26, 2009 1:14 pm

MHO is this Ron, the banks main measure is bank deposits. It's primarily where their profit comes from and consequently their main focus. The addition of other financial products are simply offered to keep the main line bank deposits / loans sticky. The more lines of products a person has at one place the less likely they are to move.

 
As for the bank broker in a place that has both. Danny loves the Bank Brokers 'BB's'. BB's are more firm oriented. They don't constantly bitch and moan. They can be fired, moved or anything else that suits the firm. They are in an upside to down environment and management loves it. THEY CAN'T TAKE THEIR BOOK WITH THEM in the vast majority of situations as they are the banks clients not the brokers.
 
Wire house Brokers are a pain in the ass to those that are used to the top down model. 'WHB's require a bottom up approach. From a management standpoint they are constantly bitching about everything. The bank doesn't own the book so they can't play the you're an employee shtick without loosing their best talent. Other firms will pay them huge money to leave with their book. They have to play ball because the relationship with the WHB is by far the strongest than all of the others combined. If the broker goes the bank will say good bye to the very thing they treasure the most...the bank sweep into deposit account.
 
To answer the main question. They will never mix well. They are like oil & water. Have twio distinct divisions that have seperate management.
Nov 26, 2009 2:58 pm

I agree with a majority of that. I think it is easier than you think for a BB to leave and take his book with him for 1 main reason. Some banks have recently created independent tracks for BB's who want to leave the branches and have their own office and assistant, but still keep the accounts with the bank. If the banks were not scared of losing guys they wouldn't create this option at a much higher payout.

Nov 26, 2009 7:15 pm

There is a major local bank in our area that bought a major RIA a few years back. Now, mind you, this RIA was one of the largest RIA's in the nation by AUM. The reason it worked (works) is that the bank kept the firm autonomous from the RIA firm (and let them keep their name, which was similar to the bank name to begin with - think XYZ Savings Bank and XYZ Financial Group). In addition, the RIA was so highly regarded in the area, that the bank did not dare mess with it. They have now expanded to include a major regional trust department that handles a lot of trust/estate work.



Keep in mind, it's the type of RIA where the book belongs to the firm. I can't imagine one of the advisors leaving and taking a significant piece of the book with them. They manage it in an "ensemble" fashion, with service people, planners, advisors, assistants, etc. And the primary reason (IMHO) was that the President, who had built the RIA over many decades, wanted to extract the value out of the firm while he still had many years in front of him. He remains the President of the acquired firm. They have like 40+ employees and over $1B in AUM.

Nov 26, 2009 9:34 pm

nice nice. citigroup is doing the same thing now. There was an article out in this months magazines about buying out RIA's to work independently but focus on the high networth.

Nov 28, 2009 3:29 am
Ron 14:

I think it could work if management could get on the same page, but that is nearly impossible. The reason FA's don't want to be in banks is because of the "banking" BS. The personalities of advisors who are trying to build a business and bankers who want to sell credit cards until they find a better job is completely different and that is where the problem is. I think it works much better with a smaller bank because there aren't many layers that need to be "convinced" about the benefits of offering investments.







I agree. I used to work for a large bank and people at the bank want the quick sale and could care less about long term relationships. It's all about the monthly checking/savings/credit card goals. Bank culture is completely different and they don't know how to run an investment firm.



In order for it to work, if a bank acquires an investment firm, they need to be hands off and let the management of the investment firm run that division. Putting bankers in place as managers always destroys it!