Migration and Satisfaction among Wirehouse Advisors Reverses Course

In an ironic turn of events, National distributors are the biggest beneficiaries of the 15% increase in advisor satisfaction reported in the 2010 Advisor Brandscape. Last year, wirehouse reps were the least-satisfied group of advisors across all channels.

While investment advisory practices continue to evolve as relationship-driven businesses, satisfied advisors lead to more satisfied clients, who in turn deliver the all-important referrals that are the lifeblood of a growing book of business. But is the growing satisfaction we see today among advisors in National wirehouses part of a lasting trend or simply a temporary (albeit significant) blip that will fade in a future market correction?

We believe the notable recent increase in advisor satisfaction has roots that go deeper than market performance. First, the market downturn had the effect of winnowing the current crop of advisors by virtue of a sharp decline in overall assets under management (AUM), and more directly, as a result of layoffs within the National wirehouses. The surviving advisor population is a more devoted and knowledgeable group of professionals. This is reflected in the 25% increase in average advisor tenure since 2007. Second, as the dust settles on the big bank mergers, the torrent of migrations from the wirehouses has slowed to a relative trickle. Those who remain have a greater sense of comfort with the services and products offered by the new mega-firms, including newly integrated back office support and their own elevated responsibilities for consulting with and guiding clients using an array of investment “solutions” rather than simply pitching stocks.

Other factors could also reverse the warming trend that has improved advisor satisfaction and reduced migration away from the National wirehouse channel. First, just as advisors begin to realize the benefits of improved service due to massive technology spend and economies of scale resulting from the mergers, those same workers could feel betrayed by a firm’s greater corporate strategy. Take, for instance, Bank of America Merrill Lynch’s announcement of Merrill Edge in June of 2010. While Bank of America Merrill Lynch hopes to take market share from discount brokers such as Charles Schwab, TD Ameritrade, E-Trade, et al., they do so at the risk of cannibalizing the current client base for wealth mangers by providing an alternative platform for self-directed investors. Perhaps more important than the possibility of losing a small share of clients (especially among those with less than $250,000 to invest) is the psychological impact the strategy could have on how advisors view the support provided to them from the home office. Advisors in large, national firms rely on a strong brand image to help sell their products and any possible dilution of the brand as an upper-tier manager could impact advisors’ bottom line.

Another potential impediment to continued satisfaction may actually be the lagging growth in the total number of financial advisors. The “culling of the herd”—as noted above—has created a zero-sum game among national entities in attracting and retaining top talent. The Wall Street Journal has reported both Morgan Stanley Smith Barney and Bank of America Merrill Lynch have substantially increased recruiting deals with the goal of luring in top talent. Large financial incentives could be sufficient to lure even those with high satisfaction and ignite yet another wave of migration. The same report also points to large signing bonuses as a key driver in current satisfaction for those advisors who switched firms in 2009. As the market improves and new job candidates enter the field, however, lavish financial incentives are unlikely to be a sustainable trend. Regardless, maintaining high advisor satisfaction should be a key priority in the coming year.

Sources:

Collins, Margaret and Alexis Leondis. (2010). BofA Seeks ‘Edge’ With Merrill Rivaling Online Firms. Bloomberg Businessweek. Retrieved August 2, 2010, from http://www.businessweek.com/news/2010-06-18/bofa-seeks-edge-with-merrillrivaling-online-firms-update1-.html

Philbin, Brett and Annie Gasparro. (2010). Sweeter Deals for Brokers. Wall Street Journal (Online). Retrieved August 2, 2010, from ABI/INFORM Global. (Document ID: 2050867671).