Wirehouses’ Biggest Weakness: The Next Generation
The challenge that the industry faces in bringing on the next generation of clients is a common trope in industry press, but it’s a serious problem for brokers, particularly at the wirehouses where the focus on the ultra-wealthy is impeding their ability to focus on bringing on younger clients, advisors say. Several advisors have voiced their concern that they’re either unable to help the next generation because of account minimums or have actually started to see some clients’ children send in account transfer forms to move money to robo-advisors.
First, there’s the account minimums that continue to rise at the big four. Merrill Lynch does not pay advisors for accounts below $250,000. UBS and Morgan Stanley cut off payouts at $100,000 and Wells Fargo just reduced payout for accounts under $65,000 while offering bonuses for those who offload smaller clients and get their book mostly above $250,000.
This makes it harder for new brokers to get into the business by bringing on clients in their generation who are amassing wealth and also keeps veteran brokers from adding clients in the early stages of their career, advisors say.
Meanwhile, independent firms are trying to exploit this weakness. For example, Jason Claborn, a former Merrill Lynch advisor who now has his own firm Modern Wealth Management with LPL, said that when he has prospects or referrals of clients who are at a wirehouse, he targets their children. Here’s a well-written take he sent in this week:
“The firms are not willing to take the long view because they are so focused on short term numbers. Look at their small account policies. Not getting paid on accounts under $250K? How did the majority of their coveted big producers start? When you have an office full of 60+ year old advisors and you don’t pay them on accounts under $250K what kind of clients do you have? 60+ year old clients. What happens when they pass on? Their kids (who have been alienated by being sent to a call center) and their small accounts now become big accounts, but not at dad’s old firm.
As a former wirehouse advisor, now an independent at 44, I am waiting them out. Higher payouts, lower overhead, I work on my own terms. We keep a file at our office of prospects or referrals who are at the wires and then try to find their children. Often times they are young people with growing families and building wealth through 401Ks or building businesses. We build relationships with them through solid planning and advice. We can afford to take them on due to the economics of an independent. We are already starting to see a turnover in intergenerational assets.
Now with the resources, brand name, technology, existing relationships and ability to quickly (although rarely) adapt to new situations we should be getting crushed by the wires in this scenario. Except they can’t see it, or refuse to see it, that the trade off for short term gains and not recruiting and training new advisors, building relationships with clients of all size and helping them grow their assets, will ultimately be their downfall.”
The turnover is already starting to happen. And if you need any more evidence of how worried the firms are, you can look to Morgan Stanley’s latest memo about its management shake-up which put their COO, Jim Rosenthal, in charge of overseeing a new robo service. The question is whether they’ll be able to make up for lost time.