Ever the cynical headhunter, when I hear senior brokerage executives talk about how their culture is different, I usually roll my eyes. In fact, recently, I hear more and more advisors talk about how they miss the old culture at their firms — that is, the culture that existed before the financial crisis. This has become so common that I decided to explore their concerns. What exactly are they longing for?

First, I looked at industry recruiting trends. In 2009, at the height of the financial crisis, about 75% of advisors who departed one wirehouse joined another, according to my research. By 2014, that percentage had dropped by more than half. But wirehouses still give the largest deals, so apparently advisors are moving for reasons other than just the up-front money. Could culture be one of the reasons?

Next, I began talking to advisors, branch managers and corporate employees of Merrill Lynch and Morgan Stanley. Of the wirehouses, these two have undergone the most turmoil: Merrill was bought out by Bank of America while Morgan Stanley bought Smith Barney from Citicorp. In addition, there was a time when Merrill and Smith Barney had the strongest corporate cultures in the industry. Based on their previous stature and the mergers resulting from the financial crisis, these firms seem to be the best laboratories in which to examine the effects of corporate cultural change.
How has the culture changed at these firms and how do those changes affect advisors’ ability to service their clients?

'MOTHER MERRILL'

Led by a series of former advisors, including Don Regan, Bill Schreyer and David Komansky, Merrill’s culture was for many years grounded purely in wealth management. While many competitors grew by acquisition, modern Merrill grew organically, with the notable exceptions of its acquisitions of White Weld, an investment banking boutique, and Advest, a small regional brokerage. Most of the firm’s advisors and their managers graduated from a common training program, which begot a strong, prideful culture. “Mother Merrill” was the way advisors referred to the firm; some have told me they “bled blue.”

Merrill introduced banking products into the brokerage world, most notably the cash management account. Merrill supported its advisors with state-of-the-art technology, lending capabilities (long before any bank affiliation) and an iconic ad campaign that both brought clients to the firm and made them loyal to the institution rather than to the advisor.

Merrill branch managers were given broad guidelines to run their franchises and were judged on metrics common to the industry at the time: Net head count of advisors, net new money into the branch, growth of higher-end households.

Today, the old Merrill Lynch culture has been chipped away by an aggressive new parent (Bank of America) agenda. Merrill managers are required to drive a host of programs designed to get BoA-defined results. For example, Merrill advisors are being encouraged to get clients to fill out the Investment Personality Assessment. This tool is a gauge of a client’s risk tolerance and highlights differences among family members — useful information for any advisor. One long-time Merrill producer (who, like other wealth management professionals, was not named in this story because he was not authorized by his firm to speak publicly) says, “I love giving clients the IPA. It leads to a greater discussion of the markets and their goals. My feedback has only been positive.” Another tool new to the firm is My Financial Picture, which shows the Merrill advisor where the client’s assets are outside the firm.

But Merrill’s branch leaders, called directors, complain that these tools, though useful, are being driven heavy-handedly. Directors are measured on how many of the tools their advisors use. One director tells me: “As individual tools, they’re a positive. But corporate leadership doesn’t understand how difficult it is for an experienced team to adopt something new.” 

Also disheartening to Merrill directors is the BoA mandate to hire large numbers of trainees and match them with existing teams. “When you mandate the numbers from above, they are too large, and I end up pushing a trainee onto a team that does not want one,” another director says. “It’s doomed to fail from the start.”
Directors perhaps dislike most of all being measured on bank deposits that are in the branch. Many Merrill clients already use the cash management account like a bank account. But directors and their advisors are encouraging clients to also open up a BoA checking account because that is good for the company.

The firm has also created strictly defined bands in which advisors are instructed to charge their clients.

Charge too little, and the charge against compensation is punitive. Says one club-level advisor: “Our culture has changed from ‘do what’s good for the client’ to ‘do what’s good for the shareholder and make that good for the client.’”

A CULTURE OF PARTNERSHIP

Like Merrill Lynch, Smith Barney had a strong culture and an iconic ad campaign. However, unlike Merrill, Smith Barney in its prime was the result of a few significant mergers, most notably its purchase of Shearson. This marked the return of Sandy Weill, founder of the old Shearson. Weill created a culture of partnership in which advisors and their managers were pushed to think like partners and do right by the client. As one former Smith Barney manager tells me: “We knew that shareholder value came from keeping the client happy. And we all were significant shareholders. Because of that we really ran the firm like a partnership.”

Smith Barney branch managers could make a difference in five specific areas of decision-making: Hiring and firing of trainees, pricing to clients, approval of non-purpose loans, marketing dollars for the advisor, and compliance. Branches were judged on individual profit and loss.

Today, Morgan Stanley complex directors and branch managers tell me they have few of the same powers. Trainees are let go quickly if they fail to meet certain benchmarks. “I would have been fired under today’s guidelines,” says one million-dollar producer. “My branch manager saw that I was blooming late and made the case to keep me.” Says another: “My manager is just a recruiter and a cheerleader. This company is all about shareholder value at the expense of being client-focused. I feel I have to protect my client from my firm.”

Current Merrill Lynch and Morgan Stanley advisors talk about how their firms used to embrace a culture of figuring out how to say “yes” and have become firms that now automatically say “no.” One Morgan Stanley advisor says, “There have been so many layoffs post-merger in the home office that people are afraid of losing their jobs more than they are proud of doing their jobs. They feel if they say ‘yes’ to an out- of-the-box request, they might be criticized for it. If they say ‘no,’ I might be pissed off, but they’d rather have me angry than their boss angry. I feel for them, but it’s still frustrating.”

A Merrill Lynch advisor concurs: “Leadership here no longer has any experience doing what I do. As an institution, Bank of America just is not used to an advisor population that has so much freedom to do what we do day to day. Because of that disconnect, they have a tough time trusting what we do and that it will give a fair return to the shareholder. The legacy BoA scandals make senior leadership here paranoid about institutional and reputational risk.”

LINGERING QUESTIONS

In today’s regulatory environment, can a big brokerage firm maintain an entrepreneurial culture for advisors — a culture of saying “yes” instead of “no”? When service firms are selling advice, can they simultaneously focus on clients and drive shareholder value?

One thing’s for sure: Advisors would like to see them try.

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