Wall Street leaders and U.S. officials continue to look at options for troubled First Republic Bank, which may include the government stepping in to encourage a deal that would shore up the lender, according to Bloomberg.
That leaves the firm’s more than 300 wealth advisors in limbo. Many have begun exploring options to jump to other firms, bringing their clients, and their clients' assets, with them, according to several industry recruiters and industry consultants.
First Republic started in the wealth management business as a sleepy regional bank where advisors collected referrals and put together investment accounts for clients. But in the past decade, leaders focused on a more-targeted wealth management strategy. The firm was known to pay outsize recruitment bonuses to attract elite advisors from national brokerages like Merrill Lynch. Those advisors brought their high-net-worth clients, who also needed banking services and sometimes extensive borrowing requirements, to the boutique shop. The wealth business has since grown to some $271 billion in managed assets, dwarfing the $17 billion overseen by Silicon Valley Bank's investment advisors.
At first, First Republic Bank would not consider bringing on an advisor who had less than $5 million in production, with most bringing in $10 to $20 million in revenue, according to an industry recruiter who declined to be named.
First Republic offered the best of what the big firms could offer, this recruiter said, coupled with an elite, white-glove-service banking platform for their clients as well as the freedom to run their own businesses as they saw fit.
“Teams grow like crazy there because they hire the best, and they had a lot of resources to grow,” the recruiter said.
First Republic’s November 2012 acquisition of $6 billion AUM RIA Luminous Capital for $120 million was, at the time, a staggering price for an RIA firm and put the bank on the map in terms of the broader wealth management business. The move paved the way for the bank's continued acquisition of RIAs, such as Constellation Wealth Advisors in 2015.
The original Luminous team, however, soon appeared to sour on the prospect of working inside the confines of a bank and walked out the door after a handful of years, taking a reported $17 billion with them, some 12% of First Republic’s wealth management assets at the time. Industry observers said the departure was another example of a failed bank/RIA marriage, where wealth management's service culture often clashes with a bank's transaction-based focus.
The recent banking crisis poses yet another cautionary tale for advisors affiliated with banks. Shares of First Republic were down 8% on Thursday as of 1 p.m. Eastern time. Though a dire future for the bank is uncertain, the crisis has caused many of the firm’s elite advisors to start laying the groundwork for their exit strategies, according to several observers.
New York–based advisor Vishal Bakshi, who left Merrill Lynch in June 2022 to join First Republic, is the latest to move, joining Morgan Stanley, according to reports by AdvisorHub.com.
One industry consultant, who declined to be named, said he had spoken to RIAs that were receiving calls from First Republic advisors frustrated at being put in the position of quelling client concerns about the safety of their money.
“Clients are like, ‘This is my cash. Are you telling me my cash is at risk? If I have more than $250,000, there’s a chance I’m going to lose it?’ They just don’t want to deal with the questions from clients,” he said.
The situation highlights the challenges advisors face when selling to or joining a bank, the consultant added. The metrics the bank uses to gauge success are always going to be different from the advisor’s.
“You get very excited. ‘Hey, I brought in a $20 million client, and there’s going to be great wealth management revenues, fees generated from this $20 million client.’ And the bank says, ‘Well did you open a checking account? Can they do a mortgage?’ They’re going to be a bank first, second and third, and then they’re going to be a wealth management firm.”
Banks have had a run at building out wealth management services before; prior to 2008, some 60% of RIA deal volume came from the banking channel, according to research by industry consultants DeVoe & Co. The activity dried up in the wake of the Great Recession.
Brian Hamburger, founder, president and CEO of MarketCounsel Consulting, said a lot of advisors are still not conducting enough due diligence into the firm they are enticed to join.
“People are unfortunately blinded by dollar signs,” Hamburger said. “They see big dollars and they’re able to justify who’s acquiring their practice. So even if a team had left a bank before and then you have a bank come bidding on a business, more times than not that team’s going to take that call and they’re going to speak with the bank. We’re not seeing a whole lot of logic in the M&A market. I think that people are really attracted to the high bidder, not necessarily focused on what is that bidder going to do for my practice and my clients.”
Last weekend, Hamburger said he fielded an endless stream of calls from advisors at both First Republic and SVB Private, many brought to that bank when the firm acquired Boston Private in 2021, looking to explore their options. (Bids for SVB’s private bank, which includes its $17 billion wealth business, are due Friday.)
“These SVB advisors feel like they’re lost at sea, without any type of life preserver, so they’re just trying to evaluate their options,” Hamburger said. “They’ve been working through their careers—like a lot of other advisors—for decades. A few years ago they thought they latched on to something that was even safer than Boston Private. Lo and behold, within 24 hours, they saw a significant portion of their own wealth evaporate, along with a lot of uncertainty that their clients shared with them that they didn’t even know existed days before.”
The firms that pay the greatest amount to recruiters—which tend to be banks and wirehouses—are the ones being presented to these advisors in significant numbers, Hamburger said.
“People who thought they were associated with a bank probably didn’t think that the bank was going to be the problem, so they’re a little rattled,” Hamburger said. “You can hear it in their voices. Their voices were quivering.”
“This is not a strategy of, ‘How do I leave to maximize my opportunity here?’ This is a strategy of, ‘How do I shore up my career? And how do I protect my clients in this environment?’”
Hamburger said he’s also been hearing from advisors associated with other banks, even those that haven’t been impacted by the banking crisis.
“Their eyes are now open to, ‘This may not be the safe place that I thought it was,’ and they are evaluating their options as well,” he said.
First Republic’s reputation has been tarnished, said a recruiter who declined to be named, so even if the firm survives the current maelstrom, recruiting new advisors will be difficult for the foreseeable future.
“I think it’s going to be near impossible to recruit anyone, unless there’s some sort of spin-off or rebrand,” he said.
“Even if they get around this, people are going to have long memories.” said the industry consultant. “They’ll feel that for years to come.”