This year, leading wirehouse and regional wealth management firms saw the financial crisis recede even farther in the rear-view mirror. Our 2013 leaders positioned themselves for success in a variety of ways. Some stayed the course and preserved capital. Others doubled down and invested in their core businesses. Regardless of which strategies they used, this year's top performers took the steps necessary to ensure they reap rewards as markets hit new highs.
"Wealth management arms have been the shining part of [their] organizations," Alois Pirker, research director at Aite Group, says. "They're thriving as risk taking is improving and the markets are looking up."
The firms on the 2013 Leaderboards were ranked based on self-reported data about their employee advisor channel. The data was gathered in a survey by On Wall Street's editorial team. Although the sources of their revenues differ, these leaders all share one quality: they know that success comes from constantly preparing for the next challenge. That's why, rather than relying on the markets to carry them forward, these top firms are eyeing the road ahead and making the necessary preparations to thrive, no matter what comes next. They are investing in initiatives such as training programs, expanding technology infrastructure to meet the demands of increasingly tech-savvy advisors and clients, and sharpening their regulatory response to address the next round of reforms quickly and efficiently. And they are doing it while maintaining a consistent commitment to their clients' success.
The Next Generation
One of the areas that currently has the attention and resources of industry leaders is the looming talent gap. About 8,600 advisors will reach retirement age in each of the next 13 years, according to a report from consulting firm Cerulli Associates. That doesn't include the 24,000 current advisors who are age 68 and older, the report states. Those demographics have inspired leading wealth management firms to deploy aggressive new techniques to build their bench.
Merrill Lynch (#1 on Total Revenue Leaderboard) recently revamped its advisor training program to improve long-term advisor retention and quality. The firm's Practice Management Development program "graduates" about 39% of each class into advisor roles. Although this is slightly above the industry average of 30%, according to Cerulli, Merrill Lynch realizes it must boost that number to around 50%, without lowering standards, in order to fill the widening advisor generation gap.
Merrill Lynch isn't making it easier on itself, though. Its own studies show that a trainee's performance after nine months is an excellent leading indicator of his or her probable long-term success as an advisor. As part of its revised training program, trainees who fail to meet certain benchmarks after nine months are put on probation.
In order to retain those who make the cut, the company has rolled out a formal mentorship program, where trainees can get one-on-one feedback from an established advisor during weekly meetings. "It builds these great relationships, but it also takes our best people and gives [their] knowledge ... to our newest people," says Tom Fickinger, head of advisor growth and development at Merrill Lynch.
In late 2011, Raymond James (#9) also adopted a phased approach to training in order to identify highly qualified advisors faster. Its Advisor Mastery Program divides the training into an introductory period that posts candidates at a branch. They periodically return to the firm's St. Petersburg, Fla., headquarters to participate in training sessions and immerse in the company's culture. This approach prevents both the firm and unfit candidates from wasting time and resources and is a good example of forward thinking, says Cerulli analyst Sean Daly.
Robert W. Baird (#8), based in Milwaukee, Wis., just graduated its first advisor from its Private Wealth Management Foundation Program, a two-year placement aimed specifically at recent undergraduate or master's degree recipients. Baird provides a full salary, plus performance bonuses for both years. It is a shift in focus for the firm, which has traditionally targeted career changers and brought up younger candidates through support staff roles. "We're finding more creative ways of bringing in talent at younger levels," says Kimberly Thekan, Baird's senior vice president, talent acquisition and integration.
Passing the Baton
As its advisor base, composed predominantly of boomers (the average advisor is 51.5 years old, according to a Cerulli study), begins to retire en masse, this year's group of top performers is developing new ways to ensure that client attrition is minimized. Six years ago, Patrick O'Connell, executive vice president of the Ameriprise Advisor Group (#10), developed a program in which its advisors can purchase the book of business of a departing advisor, either at Ameriprise or another house.
The option to buy other advisors' practices is open to most Ameriprise advisors with about $300,000 in production. Each deal takes up to 18 months to close and often occurs between two advisors who have a pre-existing relationship.
"Even if your plan is not to retire for another 15 years, you can articulate to clients that you've thought about it, you've worked on it and you have a well-thought out plan in place, which gives clients peace of mind," O'Connell says. Many at Ameriprise were skeptical when the program began. But the initiative has gained momentum as word of successes has spread and more advisors began to retire.
Similarly, Raymond James makes sure that advisors have a full menu of options when they are preparing to pass along their businesses. Tash Elwyn, president of Raymond James & Associates Private Client Group, says the firm offers resources to help retiring advisors value their book of business and lets them customize their compensation for a buyout (they can choose a lump sum purchase, structured, fixed or variable payments). Retiring advisors can decide where they want their clients to wind up, even if it is outside the firm. "Much to the benefit of Raymond James advisors or those who we are recruiting to Raymond James, we have tremendous flexibility." Elwyn explains.
Technology as a Differentiator
Another way that organizations consistently rise to the top of our annual ranking is by giving their advisors the best technology possible. This not only makes them more efficient, but it helps advisors connect with clients on the clients' terms, which enhances asset retention. That's why leading firms leverage technology solutions as a differentiator that drives success. "More efficient technology (with advisors who know how to use it) equates to more productive workers dedicating time to investment or client relationship management," Cerulli wrote.
One firm that is building a technology advantage is Wells Fargo (#3). Joe Nadreau, managing director of the firm's Strategic Solutions Group, says the company is focused on enhancing mobility, improving best practices and creating ways to better link financial advisors and clients, including new iPad applications. "As a client, you expect a firm of our size to have an iPad application," Nadreau says. "There's just a much higher level of expectation around technology because of how pervasive it is in our society."
The adoption of mobile technologies means that advisors are no longer confined to a 20-mile radius when it comes to working with clients, Nadreau says. Wells Fargo gives advisors alerts about how well their clients' portfolios are performing against life goals, which are set and tracked in the firm's proprietary investment planning program. The firm's technology also highlights rate changes for possible loan restructuring and other portfolio management information, he adds.
Video conferencing is also becoming a key technology that helps move leaders ahead. At Merrill Lynch, all of the firm's financial advisors currently have access to some level of video capability through their desktops or tablets, according to Scott Logan, head of business technology for the Global Wealth and Investment Management unit. He says the video capabilities have already brought benefits to client relationships.
The technology allows advisors to see facial expressions and signs of restlessness or boredom, something you can't do on a phone, says Logan, and getting this crucial feedback allows advisors to modify their approach. "And it's provided a huge benefit to our [financial advisors] just being able to see the different parts of the interaction," he adds.
A focus on technology user interface, for both clients and advisors, differentiates industry leaders. Philadelphia-based Janney Montgomery Scott (#11) recently upgraded its platform, developed new technology for its brokerage force, and refined its client portal.
A new desktop allows the advisor to aggregate all household assets and then model out retirement scenarios on-screen in front of the client. "When you think about the client that we have, there was obviously a need to be able to showcase technology in front of these people," says Chris Munafo, director of administration for the Private Client Group at Janney Montgomery Scott.
The firm's updated client portal is designed to be more engaging and intuitive, key considerations going forward, according to a Cerulli report. The report concludes that "portals designed intuitively to provide everything from basic account statements to meaningful market content to [financial plan] review can help relieve advisors of more straightforward client interactions and minimize distractions."
Regulatory Super Bowl
The storm on the horizon, the one that has the power to most dramatically reshape the Leaderboards next year, is regulation. The Dodd-Frank Act and other regulatory reforms created in the wake of the 2008 debacle can have a dramatic impact on revenues at firms that don't adequately anticipate and prepare for them, says John Taft, head of RBC Wealth Management (#7).
"There's this incredible sense of urgency, like we are going into the Super Bowl of regulations," Taft says. "This is an historic period of regulatory change in our industry, and we haven't seen the biggest part of that yet."
Top of mind among this year's leading firms are proposals for uniform fiduciary standards of conduct, one from the U.S. Department of Labor and the other from the Financial Industry Regulatory Authority (see "By the Rules"). The former would extend the Employee Retirement Income Security Act's definition of fiduciary to cover Individual Retirement Account advice. The Financial Industry Regulatory Authority and the Securities and Exchange Commission are considering another initiative that could apply a uniform standard of care for all broker-dealers and investment advisors.
"Even if they're done right, they'll be tremendously impactful," Taft predicts. "If they're done wrong, they could be very negative to our ability to deliver products and services to clients who need and want them in time."
In order to prepare, RBC and many other leading firms are transitioning compensation models to a fee structure, rather than continuing to rely on the commission model. Moreover, RBC developed an approach to implementing future regulations that integrates responses among legal teams, compliance, business executives, advisory, technology and operations personnel. This, says Taft, ensures that all aspects of new rules are followed and monitored appropriately. "There are going to be firms that respond well and firms that respond poorly, and that will determine their relative business success over the next five years," he adds.
Next Year's Leaders
Staying at the top of the rankings will depend on a firm's ability to master the talent gap, succession planning, technology and regulatory compliance. More than that, preparing for the future will require that firms maximize growth and expand margins so they can prepare now for the inevitable turbulence to come. Next year's leaderboard will feature firms that were able to make the most progress on these fronts while the markets are favorable.
"We're looking to continue an upward trajectory in profitability and sustain that level of performance," says John Dalby, chief financial officer and chief risk officer at UBS Wealth Management Americas (#4). "Because that allows us really to do a lot of the other things."