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Regionals Deal With Deeper Reductions In Profitability, Wirehouses Outperform During The Pandemic

Wealth management organizations aren’t one dimensional and shouldn’t ever be seen that way. Circumstances can often dictate their collective profitability and success – and unforeseen circumstances can shed light on the depth and breadth of firms’ revenue streams. The same conversations about global investment banks having priorities that may stray from wealth management seem to sound a bit differently in the midst of a pandemic. Revenue and profits that are tied directly to asset prices (i.e. wealth management) took a relative beating, while other departments held up.

A great example of this dichotomy is Raymond James and Ameriprise’s performance juxtaposed versus Morgan Stanley’s over the past week of so. Both Raymond James and Ameriprise announced reductions in overall revenue and profitability (with Raymond James even announcing the need to cut expenses across every level) while Morgan Stanley ballyhooed a knockout quarter; so much so that James Gorman took to all of the finance shows to smile and glad-hand.

Raymond James announced revenue, profits, and return on equity of -34%, -8%, and -42% for the quarter, ouch. Ameriprise announced revenue and profits that were down -28% and -7%, also, ouch. Morgan Stanley, on the other hand, announced increases of +6% and +16% respectively (to say nothing of the firm’s +73% increase in trading revenue). That breadth and depth of quarterly earning power resonate with advisors looking at a potential ‘knight in shining armor’.

The takeaway here is that balance sheets matter when advisors are evaluating a firm’s ability to add an extra 5-10% to client acquisition and retention. Dealing with short term expense cuts versus extolling the firm’s strength in the midst of a crisis is a net ‘win-win’ for Morgan Stanley versus Raymond James. You better believe that those stats and dialogue will be used when the firms respectively meet each other on the recruiting playing field.

Neither Morgan Stanley or Raymond James are perfect organizations – both of them have their pros and cons – but as of this quarter and these circumstances that are 2020, Morgan Stanley holds an edge.

 

Regional Firms Continue Recruiting Hot Streaks: 5 Reasons Why The Trend Will Continue

Regional firms have been absolutely crushing it over the past 24 months.

Most prognosticators thought that the fiduciary rule and protocol exit disruptions would disproportionately positively affect independents and RIA aggregators. While those businesses have benefited, the boom has taken place in the halls of Stifel, Raymond James, RBC, Janney, and others.

To drill down a bit, three players have gathered assets like they’ve never done before: RBC, Stifel, and Raymond James.

Here are five reasons why it’s happening.

  1. Culture, culture, culture. Merrill Lynch was an advisor’s dream twenty years ago. Brand cache, a belief in the advisor as to the firm’s revenue center, stock stability and golden handcuffs, the ‘Thundering Herd’, and smart national marketing campaigns. Now, it’s an afterthought at Bank of America. Regional names now ‘feel’ like Merrill felt in the 90’s – entrepreneurial and collegial. Their opinions and client-focused businesses matter again. Culture.
  2. Recruiting deals at regionals are either equal to or larger than wirehouse deals. Just five years ago that simply wasn’t the case. Management at places like RBC saw an opening when UBS and Morgan Stanley decided to de-emphasize recruiting two years ago and reduce their recruiting deal numbers and stepped into the gap.
  3. Executive leadership. As wirehouses have seen significant churn amongst their leadership ranks, regionals have been ‘steady as she goes’. Furthermore, regional leadership has made smart moves and kept their powder dry with respect to the DOL fiduciary rules. They waited, wirehouses panicked.
  4. Demographics. As large scale, legacy teams are at the height of their earning power (and in the midst of a historic bull market), they are looking for a soft landing that won’t nip at their heels with new quotas connected to households, loans and checking accounts. Quotas that if not met take a chunk out of their grid payouts.
  5. Financial crisis residue remains. Wells Fargo is still fighting the stigma of a scandal that is two years old. Merrill is no longer Merrill. Nearly everyone took a big bailout. But regionals don’t even have a whiff of what remains of that stink. No bailouts, no ‘too big to fail’ documentary cameos. It is an easy sell to clients who previously may have questioned a move to a regional name. That question is gone, replaced by ‘could it happen again’ to legacy wirehouse firms.

Add it all up and you have legions of million-dollar producers taking VIP trips to RBC, Stifel, and Raymond James on the regular. And the pace doesn’t look like it’s about to slow. Every single quarter wirehouse headcount dwindles. No new narrative or bloated recruiting deal can compete with the reality of the above.

Regionals will continue to win.