Solid gains for the stock market and high interest rates signal the likelihood of strong profit margins in the second half for the retail brokerage industry, which to some extent is still digesting the March banking crisis that wiped out First Republic Bank and its wealth management franchise, the envy of many across Wall Street.
Last year, the S&P 500 index dropped 18%, but many broker-dealers had some cushion thanks to rising interest rates, which provide firms with more profit from cash held in client accounts, margin loans used to buy more securities and banking activity in general.
But this year’s stock market looks quite different from last year’s; as of June 21, the S&P 500 was up 13.8% for the year. Broker-dealers typically bill clients’ fees based on their assets at the end of the quarter. So firms are gaining the double whammy of billing higher fees based on more client assets as well as generating more revenue from higher interest rates.
The fed funds rate has risen from essentially zero in January 2022 to 5% in June.
Meanwhile, the turbulence in March, which saw three midtier banks fail, including First Republic Bank and its highly regarded wealth management operation, appears to have been smoothed over. At the start of May, JPMorgan Chase & Co. agreed to acquire First Republic Bank in a government-led deal for the failed lender. During the two months of turmoil at First Republic, dozens of its high-producing financial advisors jumped to rivals.
But to the victors go the spoils in the ultracompetitive wealth management marketplace. The bankruptcy of First Republic Bank means JPMorgan’s traditional wealth management franchise will grow by leaps and bounds. It currently has about 450 advisors and $200 billion in assets.
“It would take us years to hire 200 advisors and build to $200 billion in assets,” Jennifer Piepszak, co-CEO of consumer and community banking at JPMorgan Chase, said at an industry conference in June. “So, from that perspective, it is an exciting acceleration of the wealth strategy.”
“In the grand scheme of the wealth management franchise, it’s not a huge accelerant, but for a business like JPMorgan advisors, it certainly is,” Piepszak said.
A new proposal could end the ban on promoting client reviews in states like California and Connecticut, giving state-registered advisors a level playing field with their SEC-registered peers.
Morningstar research data show improved retirement trajectories for self-directors and allocators placed in managed accounts.
Some in the industry say that more UBS financial advisors this year will be heading for the exits.
The Wall Street giant has blasted data middlemen as digital freeloaders, but tech firms and consumer advocates are pushing back.
Research reveals a 4% year-on-year increase in expenses that one in five Americans, including one-quarter of Gen Xers, say they have not planned for.
Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.
Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.
