What’s a wirehouse worth? That question was the topic of recent speculation by InvestmentNews senior columnist Bruce Kelly, who came up with a valuation of roughly $20 billion for Wells Fargo Advisors.
A call by Sen. Elizabeth Warren, D-Mass., to break up the nation’s third-largest bank prompted Kelly to muse about the value of its brokerage and advisory business, not any hints about such a possible action, of which there are none.
But at a time of low interest rates and investor interest in the wealth management business, a $20 billion deal certainly seems possible. The bigger issue is why a potential buyer would want such a deal. Would they see the business as something with growth potential or something from which they could maximize returns through consolidation and shrinkage?
Profit growth in the securities business, of course, can come in many ways, but it’s usually correlated to market cycles. Buying a business that earns money from managing and trading assets when the markets are depressed and investors are wary can turn out to be a great investment if the market cycle turns, asset values rise and the public renews its taste for buying stocks.
Most analysts agree that today’s markets are richly priced, so it seems unlikely that a current buyer of major wealth management firm would be betting on even more torrid market performance.
Another possibility could be a bet on adviser growth. But even with new owners and a new name, a reborn Wells Fargo would face headwinds attracting advisers given industry trends. The number of registered representatives has been steadily declining, to 617,549 in 2020 from 639,442 in 2015 — a loss of 21,893, according to figures from the Financial Industry Regulatory Authority Inc. Whether that’s due to retirement or leakage to the growing registered investment advisory world, expanding a brokerage workforce absent an additional acquisition would seem daunting.
If profit maximization from the current workforce is the goal, there certainly are untapped investor needs that could be addressed to better attract and retain clients. As contributing editor Mary Beth Franklin recently noted, a study by Edward Jones and retirement consultant Age Wave found that the pandemic has led retirees and near-retirees to focus less on the wealth aspects of retirement and more on issues involving health, family and purpose. Widening the kinds of assistance advisers provide and changing marketing programs could support growth.
At the other end of the age spectrum, many of today’s prospects and clients in their 30s and 40s — who may have high income yet little wealth, as well as still hefty student loan balances — often are looking for help with budgeting and debt management. This market, which many Gen X and Gen Y planners and advisers serve through several methods of compensation, also offers potential for a wirehouse buyer.
Whether the opportunities for growth came from these areas or others, any deep-pocketed wirehouse buyer would have a vision of the future that would inform whether buying the business made sense, regardless of its current revenue and profitability metrics. If the smart money were indeed in the market for a wirehouse, it would be fascinating to know what they see coming.
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