Richard Bové, a banking analyst with Rochedale Securities LLC, is expecting a bleak year for investment banks and brokerages, predicting that financial advisers will get less support from their parent firms and will see fewer opportunities to sign lucrative deals with competitors.
“The advisers not cutting it are gone,” he said.
“I also think the bigger producers won't get the 12 or 18 months' commissions upfront to move to a new firm anymore. I think those deals are out the window,” Mr. Bové said.
The key issue is that companies don't see a turnaround in this economy, he said.
Caught between the slowing European and U.S. economies, and the still-unclear impact of regulation, the big banks all are looking to cut costs.
“If they thought that things would improve in 2012, they wouldn't be making these cuts,” Mr. Bové said.
Although he said that the big producers in wealth management operations likely will be insulated from the cuts, lower-tier advisers can expect some changes.
“They won't go after the revenue producers. They tend to be well-protected,” Mr. Bové said.
“But I think that in offices with subpar producers, you may see advisers fired or moved to another office,” he said.
Advisers can also expect major cuts in research support and administrative resources as firms deal with the difficult economic environment.
“When you're not making money, you don't hire new people, and you don't increase your back-office support,” Mr. Bové said. “To protect themselves in this economy, they have to adjust their cost bases, and that means firing people and reducing compensation.”
Mr. Bové doesn't expect the wirehouses to try to move brokers to a salary-and-bonus structure rather than a percentage of the fees and commissions they generate.
The last thing that the banks want to do in this environment is increase their fixed overhead costs, he said.
When Bank of America Merrill Lynch announced its recent organizational changes, it reassured its 16,000 brokers that it had no plans to change their compensation structure.
The large banks already have given notice that they plan to cut payrolls and trim overhead expenses. The Project New BAC plan announced by BofA chief executive Brian Moynihan this year is expected to result in at least 30,000 job cuts.
UBS AG, still smarting over the huge loss in its London investment-banking unit, also plans to cut payroll and overhead.
Morgan Stanley Smith Barney LLC, which boasts the largest force of advisers in the industry, has bluntly acknowledged that it plans to continue culling low-end producers from its adviser ranks.
Mr. Bové's comments about the economy forcing large banks to cut costs is irrelevant in the case of his firm, Morgan Stanley spokesman Jim Wiggins said.
“We're already engaged in integrating two businesses and taking out costs.” Mr. Wiggins said. “That will continue.”
Calls placed to BofA and UBS weren't immediately returned.
Email Andrew Osterland at [email protected]
