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.
"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.