Big brokerage firms aren't paying attention to their clients

As financial firms become bigger and bigger, they are focused on corporate profitability over the satisfaction of their brokers and clients.

Brendan McDermid/Reuters/File
A trader for Bank of America Merrill Lynch works on the floor of the New York Stock Exchange in this file photo. Brown argues that the reputation of big brokerage firms like Merrill Lynch may be damaged beyond repair.

Joseph Giannone has a story up at Reuters that is undoubtedly coursing through the inboxes of brokerage firm employees across the country right now.  In it, he captures some recent commentary from ex-Thundering Herd chief Lyle LaMothe, a Merrill Lynch broker-turned-executive who did his best to put on a brave face and make the B of A - Merrill Lynch combo work.

LaMothe ultimately threw in the towel last spring and has now set himself up as a consultant to the RIA industry.  He is a sympathetic figure in the battle for the heart and soul of Wall Street as the wirehouses get more biggerer and focused on corporate profitability over the satisfaction of their brokers and clients.

LaMothe says brokers who are selling the entire bank - rather than being totally focused on wealth management - will not provide the best possible planning and investment advice.

The largest firms still enjoy great advantages, including scale, brand name recognition and a wide array of capabilities. But that lead could be squandered, he said.

"The strength still resides with the wirehouses," he said, referring to the four largest U.S. brokerages: Merrill, Morgan Stanley, UBS and Wells Fargo.

"But unless these organizations find a way to deliver all these services seamlessly, and if talent continues to leave, they will lose their advantage.

A few points are in order here:

1.  It's too late for the wirehouse model, the people have spoken.  Assets and talent are slipping through the now-permeable membrane of the Financial-Industrial complex as pros and their clients wake up to the fact that investing advice should be paid for, not investing products.  Giannone cites the following mind-blowing stats from Cerulli:

* Independent brokers and RIAs oversaw 35 percent of total U.S. client assets in 2010, up from 29 percent in 2007.

* Independents will boost that share to 40 percent by 2013 while that of the "wirehouses" will decline to 35 percent.

2. Nobody wants to be a salesman of products anymore, the most creative and conscientious brokers have left the "system" for the freedom of RIAland, where they can work only on their clients' behalf.

3.  The "Reputation" thing is over - everyone knows that Merrill Lynch lost $39 billion OF THEIR OWN MONEY in 2008, the idea that the organization should be worthy of managing anyone elses money is so satirically delicious that it just has to be fattening.

4.  There is no longer any technological advantage to working at a wirehouse, RIAs have access to any tool they want thanks to the web, the cloud and custodian broker-dealers they place assets with like Schwab, TD Ameritrade, Fidelity etc.

5.  There is no longer any marketing advantage to working at a wirehouse, the commercials aren't working anymore, I don't care how many wedding toasts the brokers do for their clients' daughters.  The words Morgan Stanley or Merrill Lynch used to be an "Open Sesame", they raised assets and magically brought in new accounts with just their being uttered in the right setting.  Now the reaction to them falls somewhere between weary half-recognition of their continued existence and guarded disdain for, well, their continued existence.

6.  The supermarket sucks.  No one wants to cross-sell and no one wants to be cross-sold to.  Please don't take my word for it, ask around.  Sandy Weill's Frankenstein Bankenstein concept from the Travelers-Citi-Smith Barney menage a trois was DOA, it just took awhile for people to notice.

7.  Those insanely rich deals from 2009 when the wirehouses made a mad grab to hang on to their disgusted and jaded producers begin rolling off this year.  There will be many more breakaways than there will be prisoner exchanges (moving from one wirehouse to the next for a stoopid big signing bonus).

LaMothe, you did your best and I'm glad you've seen the light - bigger was never better, it just looked like it was.  But the fact that you think this model has any future at all is counter-factual, even though the sentiment certainly is touching.

Sorry boys, the die is cast.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to

QR Code to Big brokerage firms aren't paying attention to their clients
Read this article in
QR Code to Subscription page
Start your subscription today