The brokerage chief's departure last week marks the end of the experiment of a semi-autonomous Merrill Lynch

September 12, 2011 — 1:07 PM UTC by Guest Columnist Jeff Spears

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Jeff Spears was both national sales manager of Bank of America’s Private Bank and head of the Montgomery Securities Private Client Services group when he was let go from both positions in 2003. He had been with Montgomery for four years before his departure and led a group of 120 advisors with average production of about $2.4 million. Spears held the BofA sales position for about a year, overseeing thousands of bank brokers. He ended up in the BofA role partially because his company, Montgomery, was purchased by NationsBank in 1997. NationsBank was subsequently merged with Bank of America in 1998. Spears now runs his own advisory platform, Sanctuary Wealth Services, from San Francisco. This column may not necessarily represent the views of RIABiz.

Last Tuesday, history repeated itself as Bank of America ditched its top wealth management executive, Sallie Krawcheck, in favor of a banker whose assignment is to increase profitability by “encouraging” the 16,000 members of Merrill Lynch’s Thundering Herd to cross-sell bank products. See: Merrill Lynch brokers brace for sweeping comp changes as Sallie Krawcheck departs BoA and takes her advocacy with her.

I suffered the same fate not that long ago under very similar circumstances. In 2003 I was fired and replaced by a banker after Bank of America took over Montgomery Securities and asked my management team to integrate our group into The Private Bank.

Wielding The Ax

Why are brokers and their managers inevitably sacrificed when bankers take over?

For two reasons. First, Krawcheck, myself and others like us, aren’t willing to accept the bank’s demands to place a higher priority on cross-selling bank products. Brokers got into the business because they have a passion for helping clients manage their wealth, not for selling checking accounts, home equity lines of credit or toasters.

Second, we both refused to sell out our brokers on comp. We understood that the brokers’ compensation plan needed to be different than their Bank of America “teammates,” who are paid salary plus bonus.

The news that David Darnell, an old-line NationsBank banker since 1979, will head wealth management, definitively signals the end of the grand experiment between Bank of America and Merrill Lynch. See: David Darnell tells Merrill Lynch advisors he won’t mess with their pay.

We’re all bankers now

BofA CEO Brian Moynihan has given this no-nonsense banker explicit marching orders: Deliver “our entire franchise to all our customers,” to quote a BofA press release. Translation for brokers: You’re a banker now.

As someone who has lived through this before, I’m astonished BofA is still drinking the same Kool-Aid. Namely, that BofA believes the bank – and not the individual broker – owns the customer relationship. The conceit is breathtaking.

Clients read the news, too

What are the repercussions of this move? First, your clients will start to ask when you are leaving. Clients read the news, too. They understand what’s coming, allegedly in the name of additional benefits.

Second, the bank will begin to monitor brokers’ daily interaction with clients. They want to quickly find out who is with them and who is against. As a BofA banker once told me: “We want to make sure brokers leave on our terms, not theirs.”

Third, some brokers will get fired. In fact, that’s exactly what happened to us. Some of our top-producing brokers got fired because they were looking for a new job. The term used by Bank of America’s legal department to describe their job-hunting was “skullduggery.” In essence, the bank tried to act preemptively to out the brokers who were looking around, thus allowing the bank to gain a timing advantage when trying to retain “their” clients. Of course, everyone knows that clients are loyal to people, not companies.

The bottom line

The capitulation to the bankers isn’t surprising. BofA knows that selling bank products is ultimately more profitable than the brokerage business. The profit margin on brokerage revenues is in the low teens. For banking products and services, it’s 30%-plus. If there is one thing bankers know, it’s math.

Because the banking business model is so much more profitable than the brokerage model, two things will happen: 1) The bankers will remain in control and 2) brokers (and their clients) will be on the short end of the equation. Read another way, brokers will face lower comp and their clients will be subject to statement stuffers promoting bank products. Each month. Not even the powers that be at BofA can suspend the laws of economics over time.

For clients at big banks, prepare for the onslaught – and forgive your broker if he or she is a little cranky. If you’re a broker, there’s no better time to learn the true meaning of skullduggery and to gain the timing advantage by breaking away on your terms.


Mentioned in this article:

Sanctuary Wealth Services
Specialized Breakaway Service
Top Executive: Jeff Spears



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Cory Binsfield said:

September 12, 2011 — 2:36 PM UTC

For the record, the cross selling started as soon as Merrill was rescued by BOFA. Worse, wirehouse brokers are employees not business owners. This is why the independent/RIA model continues to expand. Fortunately, clients are finally discovering that being with a big firm does not ensure you are getting the best advice. If Merrill and Lehman could not manage their own finances, how can they manage their clients?

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Ron Edde said:

September 14, 2011 — 5:03 PM UTC

The exodus is about to begin.
Ron Edde
Executive Recruiter
760-583-4806


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