Is Big Inevitable, or Just Bad?

In the last month, I've met with multi-million dollar producers from all of the major firms. On one hand, there is a lasting bitterness at the disintegration of the wealth they had in their company's stocks. On the other hand, there is a feeling of hopelessness because they fear that there is no place to move to, and if they do, that place will be consolidated as well. “Sarch,” one multi-million dollar producer said, “I have no loyalty to this place. They have written me a check to stay, but I would love to know where else I could go. And if I do, what assurances do I have that I won't end up at the same place I left?” To his point, Morgan Stanley recruited a slew of Smith Barney Advisors in 2008 only to become Morgan Stanley Smith Barney in 2009. Smith Barney, Merrill Lynch, Wachovia, Legg Mason, Prudential Securities, Advest, McDonald Investments, AG Edwards, Piper Jaffray With all of these firms disappearing as independent firms in such a short time, it's easy to be cynical and say that big is inevitable; everyone will consolidate sooner or later. Big firms always bragged that their product lines were better, that their technology was superior, that they have more scale and therefore better profit margins, that their brand names have value in retaining clients. But can you keep your Advisors happy in such a big environment? Senior management at the Biggest Firms, here are your challenges: 1. Since you are so big, each individual producer feels less important to his or her branch, his or her region, and to the firm as a whole. 2. Since you are so big, you must manage to your least common denominator; the rules for your most experienced Branch Managers are the same as they are for the raw rookie Branch Managers. In order to stay “compliant” with so many Advisors, you must assume that ever Advisor is doing something wrong, and they must prove themselves to be right, rather than assuming that they are doing what's right in the first place. 3. With almost all key decisions made from the top, the perception is that you have lost the entrepreneurial spirit and flexibility that attracted your best Advisors to you in the first place. The local office, closest to the field, has less and less autonomy on a day to day basis. 4. Fewer support people in the branch and at the home office means that Advisors have less time to spend with prospects and clients, and less time to figure out how to manage their clients' money. Next blog: How big firms can start behaving small, and the smaller firm advantages and problems