Skip to content Skip to sidebar Skip to footer

As advisors tapped into all things finance, most of you have likely been watching the death spiral of Silicon Valley Bank (SVB) and Signature Bank wondering what impact it will have with markets and the economy but also on financial advisors. The perfect storm of continuous Fed rate hikes, a struggling economy and markets, government stimulus, runaway inflation, and still the recovery post-pandemic clearly has consequences and will continue to. The Fed rushed in to bail out both banks under the guise of a security threat to the banking industry. Main street isn’t pleased that once again it will be asked to pay for the misgivings of the elite out of Silicon Valley and New York. Tension is sure to rise and animosity. Will these be the only banks? Probably not and the way in which the Fed has stepped in is important to note – the remedy favors big banks and penalizes small banks that haven’t been risk on the way the two fallen angels were.

Commentary has stated that banks with a similar business model to SVB for example might fall – which bank has the most similar model? First Republic Bank. Financial advisors have been fleeing the likes of big crony firms such as Merrill Lynch, Morgan Stanley, and Goldman Sachs for boutique solutions with incredible advisor compensation and referrals as First Republic has offered. The big bank and even FRB model has been to have clients stick given the multitude of services offered by the banks including banking services. What if the banking side tanks, where will this leave advisors? What if the firm pushes for more than the $250,000 FDIC insured, is your client to take on the risk of higher deposit balances just counting on the Fed bailing every bank out? The question is, how much risk as an advisor are you willing to take and for what? Do you want to risk a banking boondoggle with your book of business? Will that be top notch client service? The answer is obvious.

What can the prudent and strategic advisor do? Certainly, if you are not overly enthused about the direction is going with your bank employer, is to sell the business now given that the risk associated with waiting is too great after a 12-year bull market run with bank profits and valuations still close to record highs. The known and unknown risks include: a continuous tough market, inflation remaining unchecked, and the economic future highly uncertain on top of the implications of banks’ balance sheets getting squeezed with the potential of even more failures.

We asked Roger Gershman who runs The Gershman Group , a consulting firm serving advisors practices about fallout from these firms and implications, he stated “it seems each week brings a new demand or concern for advisors from new regulations guidelines, firm dictates, compliance oversight, and obviously the intricacies of markets, the economy, and banks.

We can’t help but see the Fed bailouts favor big banks who are truly the Davos set on board with the government’s agenda and that of a new world order. The greatest fear this group has is of the entrepreneur and business owner that has the strength to not be dependent on them – making sound fiscal and business decisions for your business and your clients. As this goes along through time there are ramifications to bank profits and more regulations limiting payouts to advisors thus lowering the value of advisor’s practices, client retention, and headline news that make new client acquisition more challenging.

Gershman adds, “the amount of information for advisors to consider in evaluating their future business interests has never been this high. It is clear advisors must assess risk to their practice at the firm level down to the details on how much hawking and minimizing they are willing to take.”

Financial advisors are masters of so many things, each year brings more challenges and expertise. Advisors must evaluate risk at even greater levels and plan strategically, thinking ahead as much as possible, to protect their own interests, their business, and their clients.


Brokerchalk © 2024. All rights reserved.