Unlocking Real Value Blog

AK In The Press: Opinion Piece – Why The Bank/Brokerage Marriage Has Failed

My piece “Why the Bank/Brokerage Marriage Has Failed” appeared in today’s FundFire. To summarize – the bank/brokerage marriage experiment is a failure that has harmed reputations.

It’s hard enough to be an advisor these days, with the market just finishing its worst quarter since 2008; trying to manage your own business and reassure clients about their financial situation is difficult enough. But advisors at firms such as UBS and Bank of America/Merrill Lynch now have to answer questions about their parent as well.

In the wake of trading scandals at UBS and increased debit card fees at Bank of America, advisors have become “guilty by association,” suffering repetitional risk for things that have nothing to do with them.

But the strains in these relationships go deeper than today’s bad press. Cultural differences are another key reason for the disconnect that exists. The idea of cross-selling synergies created by the addition of a bank’s product lines seems appealing at first blush; the reality, however, is that most advisors will only sell these products on their own terms – they don’t want to be told what to do or coerced into selling anything.

These culture differences extend to compensation issues as well. Advisors are used to “eating what they kill.” This mentality has never really meshed with the more conservative mindset of bank management. While banks have for the most part been smart enough not to alter compensation structures significantly, the cultural disconnect and tension continue.

In fairness, some bank/brokerage marriages seem to be working somewhat better – such as at Wells Fargo Advisors – but in this case, the marriage is based on more of a quasi-independent advisor model. You still have to wonder, however, if the name itself will become a liability sometime in the future here, as it has elsewhere.

One could rightly argue that mismanagement and lack of oversight caused many of the problems that necessitated brokerage firms to seek capital to survive and resulted in these hook-ups. But differences between the cultures are often too great, and in retrospect, attempts to merge the two outfits probably should have been avoided. Perhaps the brokerage arms should have been allowed to remain operating as totally independent units from the start. This would have saved everyone involved a lot of grief.

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