Unlocking Real Value Blog

AK In The News: The Wirehouse Cost-Cuttting Conundrum

I was asked to write an opinion piece on recent announcements by UBS and Morgan Stanley that they were undertaking measures to reduce costs. UBS chose to lay-off a small number of client service and support staff, while Morgan Stanley chose to pass along some additional costs to its advisors. So, is one way of cutting costs better than the other?┬áThe piece was published in today’s FundFire (A Financial Times Service).

In reality, I don’t think that one method of cost cutting is better than the other. The fear these and other sponsor firms always have is that they are going to “piss off” their advisors with such moves and that this may result in defections. The reality is that when you look closely at these cuts, they effect only a small number of advisors -generally ┬áthose at the lower end.

Management has an obligation to shareholders to run efficiently and smartly; they also need to foster a positive environment for their employees. Attempts to become more efficient can keep everyone happy. Often times it is the headlines that make the cost cutting efforts seem “bad” and far-reaching when in reality they are minor.

UBS, for example, laid off 75 client service associates. This is out of thousands of such associates at the firm, and you can bet it did not impact their top producers. One can argue that cuts aimed at the lower end help weed out lower producing advisors who are probably not adding much if anything to the bottom line. The financial crisis helped firms see that being the biggest is not necessarily a goal they need or want to pursue. They rather have the most efficient advisors.

And Morgan Stanley, while passing along more costs to advisors, in fact gave their top producers a pay out increase at the beginning of the year, so net-net, the effects are not that great.

All firms must cut costs at certain times. It just seems that everyone still likes to forecast the demise of the wirehouses, when in fact they have made great strides in becoming more competitive over the past few years.

Contact me if you would like me to send you a copy of the article.


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