As part of a larger cost-cutting effort, Smith Barney is consolidating some of its branch offices and laying off a number of branch managers. Sources inside the firm believe some 30 branches will be closed, most of which are satellite offices, offices performing in the bottom quintile or those that are geographically isolated.
“Real estate consolidation and capacity decisions are standard business practice,” Smith Barney Spokesman Alex Samuelson says. “We decline to comment on specific branch rumors.”
Is the consolidation specific to Smith Barney, or part of a much broader trend that has branch managers worrying about their role in this ever-changing industry?
One legacy SB branch manager, who asked that his name not be printed, called his firm “a cost-conscious, no-holds-barred operation known for its lack of people skills and harsh treatment of managers. So, I’m not too surprised by this move.” Still, he thinks it’s the start of something bigger in the industry. “Ours are the first in a long line of branch managers who’ll be going.”
Some industry insiders are more optimistic. “We aren’t seeing this at the other firms,” says Rick Peterson, president of Rick Peterson Associates, a Houston-based recruiting firm. “Wachovia is downsizing a bit, but that’s due to having acquired A.G. Edwards.” Whether there’ll be major layoffs there remains to be seen, he says. He doesn’t expect to see them at Merrill Lynch, UBS or Morgan Stanley.
Just because firms are hurting these days doesn’t mean they’re going to change the way they run their businesses, Peterson adds. “Business was down for many months preceding the recent economic crisis, yet firms have not been closing offices left and right.”
But others aren’t so sure. Stewart Lee is a former BOM who heads Lee Training in Wellston, Okla., and runs a consulting and practice management firm which helps develop the SIA’s Branch Manager Development Program. Lee thinks what’s happening at Smith Barney is merely the tip of the iceberg. Lee says, “A bad economy—combined with industry mergers—leads to cutbacks. Wirehouses are being taken over by banks, which have a history of being more fiscally prudent. I expect to see offices which are marginally successful or too geographically close to one another as being closed. We have a perfect storm for consolidation.”
Chip Roame, managing principal of Calif.-based Tiburon Strategic Advisors, a leading industry research and consulting firm, thinks the trend has already been in motion. “The structure of this industry is changing,” Roame says. “Five years from now, all the wirehouses will have fewer offices in fewer cities.”
“To me, it’s the beginning of the death of the branch manager,” says a legacy wirehouse BOM in the Midwest who asked not to be identified. “The Golden Rule used to be that a contiguous group of brokers in a single space needed someone with a Series 8 or 9 license on-site to oversee them. But this industry is moving toward a centralized system. I call it the Gorman model: having a main office monitoring branches from afar,” he says. “Firm leadership has been trying to convince everyone that branch management can be done remotely. Once they started doing that, as branch managers, we were through.”
“Branch managers are a relatively expensive management layer that was critical at one point,” Roame says. “But now, with more independent advisors and more reps moving to fee-based business, some portion—though, not all—of the supervisory roles will go away.
“It could be the beginning of the end for the branch manager role,” he admits.
Lee agrees, adding the worst part might be an “all-too-slow death,” as firms struggle with the compliance requirements of setting up alternate branch caretaker systems.
Though he doesn’t consider BOMs an endangered species, Peterson concedes they are terminated “all the time. There are about 3,000 left in the industry today, and at least one or two are let go each week—usually due to poor performance or compliance problems.” The positions get refilled if they’re in strategically important areas, he says. But, in the aggregate, “The only areas of real growth are with regional firms, and then primarily for producing managers”
Regardless, Roame says, “I don’t view this as a ‘gloom and doom’ situation. Consolidation means advisors will be going, too. That can create a lot of great new opportunities for branch managers,” he says. “The economics of producing at the independent level are pretty lucrative right now. I think this is a good time for managers to think creatively about their individual strengths and skill sets.”