Wirehouse Woes

So, with the joint venture of Morgan Stanley and Smith Barney legally complete, the retail brokerage world is down to four wirehouses. As a group, they face some extraordinary challenges:

How do you regain customer and employee loyalty after your brand has been tarnished?

Nobody I have spoken to at any level in this industry is a Monday morning quarterback claiming to have foreseen what this industry went through in 2008. All of the major firms went through a “weekend of death” whereby employees went home on Friday not sure whether they would have a place to go to work on Monday. The public wondered how it could trust an industry with its money when the industry lost billions of billions of its own capital in bad investments. Advisors and their Managers, forced to take substantial portions of their pay in stock over many years, had their own net worths crushed in the debacle. Advisors played musical chairs (I always loved that game!) as a way just to recoup their losses with up front money. Advisors and their clients will never trust or be loyal to their firms in the same way again.

How do you manage so many Advisors without crushing the entrepreneurial spirit that makes the best of them so special?

As business has slowed, you have enormous cost cutting measures. Every employee in the industry is being asked to do more, for less, with fewer resources. Layoffs are everywhere. In addition, you are part of highly regulated, compliance focused industry. Because of the mergers, there are fewer staff people responsible for supporting the largest salesforces that the industry has ever seen. This is not exactly a formula for entrepreneurialism. Can you keep the Advisors that pay the bills growing and happy, even as you support them less on a “staff per broker” basis?

Last, but not least, is this industry prepared to transition from a Sales Culture to a Fiduciary Culture?

It’s coming, in some way, shape, or form. Advisors will be forced at some point soon to be true Fiduciaries for their clients and not “mere” Brokers. Are the big producers (as measured by sales) also the best performers (as measured by investment performance and/or client satisfaction)?