Three European banks with a wealth management division have called it quits here in the United States, the largest wealth management market in the world. This could have implications for the careers of everyone in the industry.
Three years removed from the head-turning purchase of Luminous by First Republic for a reported $125m in cash, we are now in a new era. The U.S. wealth management business is evolving at an uber-fast pace.
Last summer, Barclays announced that it was selling its U.S. wealth management business to sleepy, but steady Stifel Nicolaus of St. Louis. What followed was a steady stream of Barclays’ super-star financial advisers defecting to competitors, mostly Merrill Lynch. Only Stifel knows the final count, but educated guessers have surmised that most of the good horses left the barn and couldn’t be lured to Missouri.
Then came Credit Suisse. The firm just did a very unique deal allowing Wells Fargo Advisors to have a “preferred bidder” position for its 350 ultra-high-end advisers. The problem? Many of the CS advisers determined that Wells was still “aspirational” in the ultra-high-net-worth space and voted with their feet, scattering around the street looking for a place to set up their often complicated businesses. UBS has been the biggest winner in the Credit Suisse sweepstakes – with some notable team acquisitions by Merrill and others.
And last, but not least, there’s Deutsche Bank. It announced recently that it had sold its legacy Alex. Brown & Sons wealth management unit to Raymond James, the new beast on the block hungry for acquisitions.
Evolution of banks’ wealth management model
Why did these three storied European banks sell all or part of their U.S. wealth management businesses at fire-sale prices while the founders of relatively obscure newcomers like Constellation Wealth Advisors and Baker Street Advisors were selling their firms for huge returns?
If you are trying to run an investment bank and a grid-paid wealth management unit – see Barclays, CS and DB – and you don't have scale in the U.S., then you will most likely fail here. If you are strictly focused on one or the other – or if you do have scale, say, north of 1,000 advisers – then you will most likely thrive here.
Look at the multiples being paid for well-run registered investment advisers (RIAs): 10X the overall value of the firm's earnings before interest, taxes, depreciation and amortization (EBITDA) seems to be the range of winning bids. Everyone likes to say that scale is the secret. I say no. Headcount per billion dollars of assets under management is the secret. Managing your overhead effectively is a must.
Let’s list some of the areas where senior executives at lean-and-mean wealth management firms will be looking to cut costs: rent, fixed compensation, technology, healthcare, general HR, coffee and furniture. Hey, every little bit counts. It is an outsourced world, and if you aren’t making billions of dollars in profit like the wirehouses, then you need to keep headcount down, and you need to at least consider outsourcing products and services.
How compensation is evolving
What does this all mean from a career perspective? Fewer jobs with a fixed salary plus a discretionary bonus.
Imagine how many home-office staffers and execs are out of work with the shuttering of Barclays and CS. There will be some opportunities for the DB folks paid on salary now headed to Raymond James, because they will bring expertise and capabilities that Ray J. formerly lacked. However, how many compliance departments and HR departments does Raymond James need? One of each, and they’re based in the firm’s St. Petersburg, Fla., headquarters.
What employee category benefits as always? Sales. Show me a firm that is happy with their market share and revenue and I'll show you the next Barclays. Effective salespeople will continue to be in demand.
Grid-paid jobs? Huge! Salary-plus-bonus jobs? Not so much.
How to break into the biz
As far as which path to take as a rookie looking to get into the wealth management industry, times have changed dramatically.
Back in the day, there were so many doors a highly qualified candidate could enter through. In addition to the mega-firms with their $250m training programs, as recently as 20 years ago there were some great boutiques offering training programs. Examples of the latter include Robertson Stephens, Alex. Brown, Montgomery Securities, Hambrecht & Quist (H&Q), Credit Suisse, Lehman Brothers and Morgan Stanley (before its merger with Dean Witter).
All of these firms are gone, integrated into a parent company, dramatically reconfigured or reborn. With the lone exception of Morgan Stanley, none of them are recruiting trainees, or if they are, very few of them.
Most RIAs don’t have sufficient budget or patience for underwriting trainees.
If you can’t get one of the 40 private wealth adviser (PWA) training slots at Goldman, how do you break into the wealth management industry? The exodus of European banks from the U.S. wealth management space is just the latest indication that the traditional path is unofficially closed, or at least severely constricted, with no opening in sight.
And yet, with the average age of financial advisers closer to 60 than 50, the industry is desperate to groom the next generation of wealth management professionals. That spells opportunity for aspiring financial advisers.
Here are a couple of pieces of career advice for wealth management professionals:
Only work for companies, big or small, that are expense-conscious.
Only work for companies that are committed to a significant and constant investment in the latest technology, or whose executives are smart enough to outsource it cost-effectively.
Jeffrey Bischoff is the president of Old Greenwich Consultants, a retained search firm focused on the private wealth management sector.
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