Big brokerages like UBS and
Merrill Lynch are grappling with regulatory costs and fighting off the rise of
independent registered investment advisers who continue to take market share
from them.
Some of the U.S.’s biggest
brokerage firms, overseeing trillions of dollars in assets, are rejiggering
their structures to shift more power to brokers and the managers closest to
them in an effort to increase revenue and assets.
The new executive teams running
Bank of America Corp.’s BAC -0.38% Merrill Lynch and the U.S. wealth-management
arm of UBS Group AG exemplify this new strategy, coming as the two big
brokerages grapple with regulatory costs and fight off the rise of independent
registered investment advisers who continue to take market share from them.
“The whole wealth-management
industry is at a crossroads,” said Alois Pirker, an analyst at Boston-based
consultant Aite Group. “Brokerages are seeing that the [registered investment
adviser] model is successful because they are in small units and can direct
their resources better.”
Merrill said this past week that
it would restructure the brokerage’s leadership around six divisions covering
the U.S., down from 10, moving some executives to new positions focused on
boosting broker productivity and training, while others retired or await
yet-to-be-named roles. Merrill head Andy Sieg told brokers the goal is to make
Merrill “feel like a smaller, more tightly integrated firm.”
UBS undertook a similar effort
last summer. It reorganized its broker regions, eliminated a layer of managers
and boosted the number of branches, while also giving managers of those
branches greater control over day-to-day decisions involving clients and
growth. Tom Naratil, president of UBS’s U.S. arm, said the idea was to “move
decision-making and resources closer to clients.”
Automated investment services are
also coming online at both brokerages, with Merrill launching a robo adviser
earlier this year as UBS is in the process of testing its own. Geared toward a
younger group of clients known as mass-affluent investors, the firms’ digital
services are expected to free brokers up to focus more on their richer and more
profitable clients.
Executives at both firms want to
give their brokers more time and autonomy to collect assets, abandoning a model
that consolidated power in the firms’ headquarters and stripped local managers
of their powers. That means giving field managers, executives responsible for
corralling brokers, enough freedom to make decisions tailored to their regions
and without senior leadership signing off—a power many local managers had held
years before the financial crisis.
At UBS, for example, branch
managers now say they have greater rein over client pricing and marketing.
Merrill’s changes haven’t fully taken shape yet, but people familiar with the
restructuring say market executives will have a bigger say in how to build
their branches, through both recruiting new brokers and their clients and
helping current Merrill brokers attract new assets.
The shifting approach is expected
to do more than just boost asset gathering. Firms hope it helps stem a tide of
brokers who had left in the wake of the financial crisis as brokerages’ upper
management imposed restrictions on their activities. Brokers who dislike their
branch manager or find them unhelpful are more likely to ditch the firm,
recruiters say, adding that managers who focus more on training or supporting
brokers tend to better retain staff.
The changes come at a crucial
time for the big brokerages. Merrill’s revenue has fallen over the past two
years, as lower fees and commissions tied to volatile markets, as well as
broker departures, have weighed. UBS’s operating income in its U.S. wealth unit
had been relatively flat from 2014 to 2015 before increasing 3% last year, a
bump-up that came during the restructuring.
Meanwhile, the ranks of
independent financial advisers have been growing as much as three times the
rate of the big, traditional brokerages, a once rare occurrence in the years
preceding the financial crisis, experts say.
Independent advisers have been
closing in on traditional brokerages’ supremacy since 2011, when they
controlled about 36% of retail assets, compared with brokerages’ nearly 64%
share of the market, according to research firm Cerulli Associates. At the end
of 2015, independent advisers oversaw nearly 41% of retail assets, while
traditional firms’ share slipped to about 59%. By 2020, Cerulli projects that
independent brokerages will hold more assets than the traditional firms.
“Brokerages realize the wind is
changing,” Mr. Pirker said. “The amount of change within these organizations is
reflective of the pressure.”
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