Krawcheck: Wirehouses undaunted by RIA growth

Despite a rapid rise in the independent channel, big brokerage firms aren't running scared

Dec 11, 2014 @ 11:14 am

By Mason Braswell

Sallie Krawcheck, former head of the brokerage units at Citigroup Inc. and Bank of America Merrill Lynch, stepped into the lion's den on Wednesday to downplay the impact on wirehouses of the so-called breakaway broker movement.

Speaking at the MarketCounsel Summit for independent advisers, Ms. Krawcheck said while press reports make it look like advisers are “running from the wirehouses,” the actual numbers are much lower. Only 37 advisers left to go independent in the year after Ms. Krawcheck took control of Bank of America Merrill Lynch's broker unit in 2009. Meanwhile, the firm brought in 26 advisers from the independent space, she said.

“The truth is that just as so many of your clients love you, the clients of wirehouse advisers love them,” she said. “They're ranked more highly than their clients' doctors, and there is an enormous amount of trust.”

She also downplayed an idea that has floated around the industry and was pitched earlier in the day by Mark Tibergien, chief executive of Pershing Advisor Solutions, who predicted that a wirehouse would buy a large registered investment adviser in the next 10 years.

Ms. Krawcheck, who left Bank of America Merrill Lynch amid a management shakeup in 2011, said she had personally scrapped a similar proposal when she was at the firm because she decided Merrill would get more return on investment by expanding its existing business or reaching out to underserved clients.

“We lost [37] and gained [26], so to spend millions doesn't make sense when we have other places to spend money,” she said. “You're always going to have a higher rate of return investing in the existing business than starting a new business.”

Ms. Krawcheck maintained her position despite pointed questions from Mindy Diamond, an industry recruiter who conducted the interview and has helped wirehouse advisers go independent.

Ms. Diamond countered that the numbers had accelerated from the 37 breakaways per year at Merrill Lynch, and that the advisers who were breaking away were of much higher caliber than when Ms. Krawcheck was there.

Ms. Diamond added that as retention packages given out during the 2008 merger wear off, more advisers may move and the number of options advisers have when going independent also means more large teams might be willing to make the leap.

“What do you think the leaders of those wirehouses are sitting around those board meetings saying?” Ms. Diamond asked. “Do they look at just the number, [and not] the quality?”

“There's a report that's delivered every Friday at all the firms that shows the number in and number out listed by name and how much they manage,” Ms. Krawcheck said. “There's much wailing and gnashing of teeth when it's someone you know, even more when it's someone the CEO knows. It's miserable.”

But, she added, “because you know 10 of these folks, or an incremental 20 of these folks, leave, do you have a different business strategy?”

Ms. Krawcheck said bigger threats to wirehouses than the growth of the independent space were the compound problems of how the wirehouses could capture the business of women investors and the next generation and how they would find the next generation of advisers as the average age of advisers continued to creep up.

Investing in training programs would take precedent over developing an independent advice channel, said Ms. Krawcheck, who now runs Ellevate, a professional network for women.

The industry loves to debate which model will win out, but at the end of the day, she said, the growth of one side of the business is not always at the expense of the other.

“These are sort of inside baseball topics that we, as an industry, have and love to debate,” she said. “[But] the other point is that the market is so big that there's room for everybody.”

0
Comments

What do you think?

View comments

Upcoming event

Nov 13

Conference

Top Advisory Firm Summit

Formerly known as the Best Practices Workshop, this new one-day conference will also include content from the Best Places to Work event!The Top Advisory Firm Summit will provide CEOs, COOs, CTOs, CMOs, and Managing Partners from the... Learn more

Most watched

INTV

How advisers can be a gamechanger for women investors

Why women defer to men when it comes to finances and how advisers can combat this phenomenon and make a difference for female investors, according to Heather Ettinger, founder and CEO Luma Wealth Advisors.

INTV

How the 2020 elections could impact ESG investing

Joseph Keefe, president of Impax Asset Management, on the elections and how advisers can build a bridge to the next generation of clients with ESG investing.

Latest news & opinion

Schorsch, AR Capital to pay $60 million to settle SEC charges

The former REIT czar and his firm wrongfully obtained millions linked to REIT mergers.

CFP Board postpones enforcement of its revised fiduciary standard

Board's new Code of Ethics and Standards to be enforced next June, in line with the SEC's Reg BI

Charles Schwab reportedly in talks to buy USAA brokerage, wealth management business

The deal would net Schwab roughly $100 billion in new assets.

Advisers scramble to help retirees navigate looming Fed rate cut

The Fed's first interest-rate cut in a decade has advisers warning against chasing the bait of risk over safety.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print