Interesting read

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Dec 30, 2008 10:39 am

Even has a few comments about the WB/WFC deal, in particular, the words "they will be shocked".


http://www.financial-planning.com/asset/article-print/2636891/printPage.html
 
Dec 30, 2008 11:26 am

Very interesting!  What happens to the regionals when all of a sudden they're the Merrils and SB of the world?   Can they remain advisor friendly?   

Dec 30, 2008 11:53 am
Ferris Bueller:

Who gives a rip what some recruiters think.  They get paid to make people move.



Good article, did they miss the mark that much??

Yes, recruiters make a living moving FAs. But, I know a few of the names in the article and have worked with one of them who was contracted with a former firm of mine. They're clearly offering opinion from their perspective, but that perspective is shaped not only based on their desire to move FAs, but from talking to 100s of FAs every week.  Sure they don't get all the facts on every call, but trends and patterns do develop and that shows up in the comments here.

I'm not a big fan of the way this business has literally become a recruiters playground, but they did not make it that way. Firms continue to pay stupid money and recruiters will continue to chase it until that changes. Many of these guys were brokers or managers in the business for goodness sake. They know exactly how large a piece of the business they are or they'd go hunt doctors or IT guys or whatever else is worth a few dimes.

Dec 30, 2008 2:16 pm

As I've said before, it's Major League Baseball Free Agency, and these guys are the agents.  The wirehouses are the Yankees, Red Sox, Angels, Dodgers, et. al.  But look what happened to the Yankees.  At some point you reach diminishing returns.

 
I think the indy world will become a "game-changer" for this industry.  With higher payouts and independance, many big producers don't need the big upfront money to make the move (where they would only move to another wire for a check).  So the wires will either cave by paying more upfront, increase payouts, or come up with their own "quasi-indy" platforms to retain people.  Personally, I think they do that latter.  Come up with some reduced-service model; you pay rent, admin, fees, etc., we'll do your payroll and back-office accounting.  Maybe give a 65%-80% payout.  I have no idea of what the economics are inside the brokerage arms of the wires, but I bet they could make it happen.  After all, what could be their next act?  You can't pay much more upfront to buy 55 year-old brokers, there are no more acquisitions to be had, how do you grow?  They all just keep poaching from each other.  I think they've reached the pinnacle of their current structure. 
 
The only saving grace from this point forward will be that there should be some tremendous asset growth going forward, which will naturally help fees.
Dec 30, 2008 3:58 pm
B24:

  At some point you reach diminishing returns. 

 
This brings me to my question before.  At what point do the Regionals become to big and are the "new" wirehouses? 
 
When I was at Jones, I was in St. Louis for some training and there was some big wig there, I think he was the GP in charge of training, we were at lunch and I asked him when they thought we would reach maximum growth, the point that they thought we would have too many offices?  He said they never think they'll have to many offices.  I couldn't understand it then and I can't understand it now.  When there are Ed Jones offices every other corner and Jones reps are taking clients away from other Jones reps at some point you reach "diminishing returns". 
Dec 30, 2008 4:20 pm

[quote=jkl1v1n6

 
 
When I was at Jones, I was in St. Louis for some training and there was some big wig there, I think he was the GP in charge of training, we were at lunch and I asked him when they thought we would reach maximum growth, the point that they thought we would have too many offices?  He said they never think they'll have to many offices.  I couldn't understand it then and I can't understand it now.  When there are Ed Jones offices every other corner and Jones reps are taking clients away from other Jones reps at some point you reach "diminishing returns".  [/quote]
 
Jones has maybe a 2 or 3 percent market share. So in that sense, they could probably triple their number of offices and not have diminishing returns. ... I don't know how many offices they have in St. Louis, but conceivably if they had the same saturation throughout the U.S. they would have probably have 50,000 offices.
 
Dec 30, 2008 4:50 pm

I think when Jones says "they'll never have too many", what that's basically saying is that you can probably never grow to that point anyway.  I mean, Merrill could grow to 40,000 FA's if they wanted to.  But they won't.  At some point, Jones will grow to 16,000 or so, and some of their focus will shift from growth to health of FA's.  It will just be a natural progression.  But right now, you have to focus on the task at hand, not worry about what might happen if you are "too successful".  Personally, I think Merrill has shot themselves in the foot by forcing out all the "lower" producers.  Do  they think every $1mm producer is going to grow to $2mm?  Unless that happens, how do they grow?  And unless they grow, how do they survive?  The only thing that makes sense to me is that they ripen themselves to go private again at some point.  And better to do that with 12,000 FA's than 18,000.  Less overhead.  More potential partners (more higher producers). 

 
But back to the question at hand...Jones can run profitable offices in low-cost areas at 300M gross.  Actually a bit less in many areas.  Everyone seems to think the overhead is so irrational at Jones, but it really isn't.  Most offices are 800-1,000 sq.ft., the BOA's don't make that much.  We don't have palacial offices, because we don't generally cater to that clientelle.  No, we will never have $1mm average account sizes.  Most FA's will have more accounts than they can reasonably manage (which is the case with many wirehouse FA's), but it works for Jones, it works for the FA's, and it generally works for the clients they serve.  But I think it's important that they not over-saturate areas, and focus on growth in under-developed markets (which they seem to be doing).
Jan 2, 2009 10:11 am

Can't remember where my head was at before New Years's (might be the Champagne) but your last line about not over-saturating areas was my point from the start in talking with the GP.  He gave me an answer that really wasn't an answer.  He'd make a good politican, which might be why he was at the home office. 


I have seen some pretty nice Jones offices, I wouldn't say palacial but pretty darn nice.  Of course they were built and owned by the IR's.  Whoops FA's.  Why did they change that?  Regardless, I still have friends at Jones and I haven't heard about a new office opening in a while, just new brokers filling vacated offices.  


Jan 2, 2009 2:50 pm

Jeez this one has gone off track!!  We're now talking about the beautiful Jones offices?? I'm bustin' up!  Did I mention my local Jones office is sandwiched between a Gamestop store and a Dunkin' Donuts? How much better can life get?