Unlocking Real Value Blog

A new Cerulli Associates Inc. survey of 400 affluent households with at least $10 million in investable assets has some very sobering news for advisors:

• 57% of these households are working with at least five or more advisors
• 64% are working with at least four advisors (compared to 16% in 2008)
• 18% are working with only one advisor
• 44% changed their primary advisor over the past 12 months

I am frankly surprised by these results. Two or three advisors makes sense – but four or five? We have all heard reports that the financial crisis resulted in large client moves from advisor to advisor – but the fact that almost half changed their primary advisors should make advisors sit-up and take notice.

The report also talked about the needs of these clients. On average, these households have more than 13 in-person meetings and 18 client-initiated phone conversations per year. Add advisor-initiated telephone contact and the number of annual contacts approaches fifty. We all know how important services is – but this many contacts per client is a little surprising – and obviously requires a lot of time and resources.

If I were an advisor reading this, I would ask myself the following questions if I either am or are thinking about targeting this niche:

1) Do I really want to serve this niche, or am I better off going after clients with fewer assets? Focusing on clients with lets say $1,000,000 to $5,000,000 in investable assets is still a huge marketplace and client expectations might not be as high.

2) If you do want to serve this niche, you need to ask yourself questions such as a) How do I become the “Alpha” advisor – the primary advisor?; b) How do I altar my marketing approach to demonstrate that I have the ability and experience to help evaluate the client’s entire portfolio, not just the portion they have entrusted to me? In other words, if I take as a given that clients will test me and use other advisors from time to time, how do I establish my role as the person that helps them in their overall evaluation and monitoring process? Often times, helping rather than fighting this trend will distinguish you from the competition; and c) Is my service organization and team capable of servicing clients that are demanding so much attention? Do I need to re-jigger my service strategy to accommodate these trends?

3) Is my message and value added proposition clear? Money has been in motion and the odds are that some of these clients will not be happy with their new advisors. How do I highlight my differentiating characteristics to take advantage of today’s trends?

This study highlights the fact that competition has increased (we all knew it had – but not to this extent). Use this information to make yourself and your business better.

I saw this morning that four Morgan Stanley Smith Barney branch managers recently left the firm – two went to competitors and the fate of the other two was not known by the reporter. It got me thinking, is there a worse job in this business than being a branch manager, especially at a wirehouse?

You will know from past blogs that I am not one of the many wirehouse bashers – I have spent many years at these large firms, and despite recent difficulties, I feel that they will have their day once again. But over the past few decades, the role of branch management has changed, and not for the better.

Historically, compliance jobs were always considered the worst in the industry. Everyone hates those anti-business people in compliance and legal, don’t they? Realistically, we know that they are a necessary evil and in fact there to protect us – but it was always fun to blame them for everything bad. But now, in today’s world of transparency and full disclosure, compliance has become a friend more than a foe. In fact, almost unheard of years ago, people sometimes look for that “no” to avoid things that they really don’t want to do!

Conversely, branch management used to be a glamorous job. The branch manager was respected, helped train and mentor the rookies, held productive sales meetings and stood up for his guys when the home office was being difficult. Those days are behind us, especially at the wirehouses.

Branch managers have largely become babysitters – bringing down the hammer at the request of the home office, and often saying no to protect themselves. I have an old friend who was a branch manager. His firm asked recently him to fill-in temporarily when they were between branch managers. He did it – but only out of a sense of loyalty, and he did it kicking and screaming!

To cut costs, many branch managers have been let go in place of complex managers, pay has been cut, and I’ll bet we all know tons of former branch managers who are now producers.

So yes, I think that the worst job in financial services is definitely branch manager.

What do you think?

Any way you slice it, the cultural problems between the “old” Merrill Lynch and parent Bank of America persist. Part of the problem is the classic meshing of a bank with a brokerage firm.

Business Week’s article this week on the firm (entitled “The Bull Whisperer”) highlighted many of the potential causes of the continuing conflict – Bank of America’s “connectivity” initiative (a.k.a. encouraging/mandating cross-selling of proprietary products), the desire of the bank to have brokers get rid of smaller accounts (or at least offer smaller clients less service), the low price of the stock, the continuing bad press surrounding the bank, etc.

Whether you support the notion that the partnership is not working – Merrill brokers are leaving in larger numbers than the competition – or you think the partnership is working – brokers have access to more liability-side services – there is one clear lesson: brokers just don’t like being told what to do. All other reasons aside, and regardless of the rationale – increased bank profitability – the connectivity initiative is only going to drive more brokers away.

The bottom line is that the large broker/dealers will continue to exist, and many brokers will continue to make the move to independence. Regardless of the reasons for the larger number of brokers leaving ML, the lesson for upper management is that you can’t ignore cultural differences. To do so will lead to continued unhappy marriages like the ML/BofA one.

Having said that, I understand that in the case of this merger there really was no choice – the merger happened at the apex of the financial crisis and ML was headed toward certain bankruptcy. So in cases like this, management needs to be a little smarter, recognize the irreconcilable cultural differences and stop trying to put a square peg in a round hole.