Stick around the brokerage industry long enough, and you’ll probably get sick of the ol’ saying, “Advisors vote with their feet.” While it certainly has some truth to it, the move very often is a grab for a new, higher signing bonus. So staying in one place really does speak volumes.
Many industry propellerheads have forecasted an exodus of wirehouse advisors to the independent channel as retention bonuses unwind this year. But REP.’s 22nd annual Broker Report Card Survey shows that—with the exception of Morgan Stanley—most advisors at the national brokerages feel just fine where they are. In fact, 93 percent say they likely will still be working at their current firm two years from now.
“This is a very high level of retention,” says Philip Palaveev, founder and CEO of The Ensemble Practice, a consulting group in Seattle. “This means that right now, most advisors are set.”
In fact, most firm ratings were higher than in last year’s survey. Firms that didn’t go through large-scale merger integrations were at the top again this year, with Edward Jones breaking Raymond James & Associates’ two-year winning streak to take back its position as a perennial favorite.
“Edward Jones and Raymond James, they have a much more clear mission that has not been damaged through these monster integrations and acquisitions and mergers,” says Tim Welsh, president and CEO of consulting firm Nexus Strategy.
UBS maintained its position as third overall but first among the four wirehouses, scoring an overall rating of 8.2 out of 10 (up from 7.7 in 2011). Firms with merger integration issues were at the bottom of the heap, although Wells Fargo improved its score significantly (7.6, up from 6.4 last year).
The two goliaths of the wirehouses—Merrill Lynch (Bank of America) and Morgan Stanley (formerly Morgan Stanley Smith Barney)—still struggle with integration issues, and disgruntled advisors are locked in by retention packages. Merrill saw a slight uptick from last year (7.3 from 7.2 in 2011). Morgan Stanley’s advisors are clearly not a happy bunch by any means, giving the firm a 4.5, down from last year’s 5.7, likely because of issues surrounding the rollout of its new technology platform. The quality of the firm’s technology/advisor workstation had the lowest score among the firms (3.8 versus the average across firms of 7.4).
“But there’s no doubt about it that some of the scores of Morgan Stanley are at levels of anger, rather than just dissatisfaction,” Palaveev says.
That said, by and large advisors are pretty satisfied where they are, with ratings creeping up on categories such as products and research, compensation and benefits, compliance support and even overall performance aspects. Most advisors said their own firm was the best wirehouse to work for, all things considered, with Morgan Stanley being the outlier. (Only 36.1 percent said it was the best to work for.)
What accounts for the happiness? The markets, for one: For the year ending Nov. 15, the S&P 500 Index was up 7.85 percent. For the three years ending Nov. 15, the S&P is up 22.35 percent. About 65 percent of advisors said their annual gross production had increased from a year ago.
“Usually from my experience people are happy when the markets are up,” Nexus’ Welsh says. “They’re willing to overlook the stuff that drives them crazy, cause they’re making more money.”
Distance from the crisis, time to get acclimated to the mergers, and other changes at these firms also likely contributed to increased satisfaction. Advisors have had three to four years to let it sink in.
“Friction in the system eventually gets moved out, and people resign to their fate: ‘Yep, we’re part of BofA,’” Welsh says.
And those who were unhappy with the changes coming out of the crisis have likely jumped ship by now. According to data by Cerulli Associates, the wirehouses lost 2.4 percent of its advisor count in the last four years.
With the crisis four years behind, most of the unsatisfied ranks and lower producers from these firms have likely been flushed out of the system, leaving those who are satisfied employees, says Alois Pirker, research director at Aite Group.
Allure of Independence
That is not to say that there won’t be more movement out of the wirehouses. The allure of independence is persistent, and the winding down of retention packages will likely lead some to the exits.
Twenty-two percent of respondents said they have considered going independent in the past year, up from 18 percent last year. Morgan Stanley (36 percent) and Wells Fargo (26 percent) advisors are more likely to consider it.
Many large teams are breaking away to the RIA model, and a few prominent acquisitions of RIA firms are making it even more alluring. In November, Los Angeles-based Luminous Capital was bought by First Republic Bank for $125 million in cash. The team left Merrill in 2009.
“That had to send shockwaves to every big team,” says Todd Taylor, partner at Heidrick & Struggles, a global executive search and consulting firm. “It makes the allure of independence for the megateams out there to be so much more enticing, and that’s only going to continue.”
Lately, the headlines have painted a dire picture of the wirehouse channel, with predictions of significant exits as the golden handcuffs come off. But by no means has there been a mass exodus from these firms; in fact, last year the channel increased its advisor count by 1.4 percent.
Going forward, the exodus will likely resemble the current of a creek, not of a big river that many have predicted. The wirehouses are expected to lose only 1 percent of their advisor force by 2016, Cerulli Associates estimates. And these firms still have the largest asset market share in the industry, at 26.4 percent as of 2011, Cerulli says.
“I’ve never been a believer that somehow the wirehouse model is falling apart and disappearing,” Palaveev says. “Day after day, we see a team leave a wirehouse and go independent. But if we really count them, at the end of the day we will find that there’s probably no more than 500-600 advisors a year that go independent.”
There’s a big difference between what people are thinking and what they actually do. It still stands that most respondents don’t plan on moving anywhere.
‘The Wheels Are Coming Off’
Advisors held mixed opinions on the integrations this year.
Wells Fargo advisors have a slightly better view of their integration than last year, with 24 percent viewing the impact on their business as positive (up from 20 percent last year); 12 percent view it negatively and 32 percent are neutral.
Four years ago Well Fargo & Co. acquired Wachovia, which in turn had bought A.G. Edwards in 2007. Wells had more time to get past the heavy lifting, Taylor says, since they were the first to go through an integration.
At Bank of America/Merrill Lynch, more advisors believe the merger has had a positive impact on their business (27 percent) than a negative one (17 percent), while 35 percent had a neutral opinion. (Where percentages don’t add up to 100, that means some advisors didn’t respond.)
“Merrill Lynch has done a good job limiting the extensive cuts and reductions that have taken place at Morgan Stanley,” Taylor says. “The real question is, will the bank allow advisors to feel like they can pursue building their independent practices, or will they be seen as trying to drive a wedge between the client and advisor?”
That’s not to say that it’s all rosy at Merrill. In their comments in the survey, advisors voiced concerns about BofA’s management and account minimums of $250,000. Others talked about the contracts and the lack of better options that were holding them down.
“The heavy lifting is happening at Morgan Stanley,” says Pirker. “That’s where a new platform is being created.”
A whopping 63 percent of MS advisors believe the integration had a negative impact on their business, up from 49 percent last year. One advisor wrote, “The wheels are coming off,” and, “They have lost their way.”
Many of the problems stem from the firm’s technology integration, Pirker says. Instead of consolidating on either the Dean Witter or Citi technology platform, as was expected, MS designed a completely new platform that both sides of the house had to learn. In the survey, advisors called the new platform “bulky,” “counterintuitive,” “terrible,” and a “joke,” among other things. Respondents gave the firm’s technology a 3.8 out of 10.
Other issues may stem from the cuts Morgan has put in place. In August, the firm cut the number of brokerage complexes from 118 to 86 and its non-producing branch managers from 150 to 86, according to published reports. Sources say the firms’ combined number of full-time managers was even higher before the merger.
“Unfortunately this is a trend that has been occurring over the last several years, since the merger,” Taylor says. His firm’s estimate is that the ratio of advisors to non-producing managers has nearly doubled since 2008, from 55 to 1 to over 90 to 1. “While they have many more producing managers who perform some management duties while also managing a book of business, the reduction of so many non-producing managers takes away considerable leverage in both the recruiting and coaching efforts, and ultimately in the retention effort as well.”
According to one Morgan Stanley branch manager who wrote in, a number of branch managers will see their compensation cut by between 40 and 70 percent. “Many of the managers are just waiting to get their year-end bonus in February (of which 50 to 75 percent will be deferred) and then leave the firm to pursue other opportunities,” the advisor wrote.
Chief Executive James Gorman has set a target of 20 percent for pre-tax operating margins, but in the third quarter, margins were down to 7 percent.
“Everybody goes through their period where they’re the slow rabbit,” says Frank LaRosa, president and CEO of Elite Recruiting & Consulting. “But they’re cutting things that advisors need to help service their clients, and that is counter-productive to growing top-line revenue.”
How This Survey Was Conducted:
Between Sept. 6 and Oct. 26, 2012, REP. e-mailed invitations to participate in an online survey to REP. print subscribers and advisors in the Meridian-AIQ database at the following firms: Edward Jones, Merrill Lynch, Morgan Stanley, Raymond James & Associates, UBS and Wells Fargo Advisors. By Oct. 26, 3,402 completed responses were received. Reps rated their current employers on 33 items related to their satisfaction. Ratings are based on a 1-to-10 scale, with 10 representing the highest satisfaction level. They were also asked additional questions about their firms. And respondents were given space to post their own opinions,