Spare a thought for the embattled branch office manager. Once upon a time, producing branch managers were the industry stalwarts, the straw that stirred a branch’s drink. They mentored young reps, wined and dined and brought in top guns from rival firms and, in general, were credited with a branch’s overall success. Today? BOMs are increasingly considered a cost of goods sold on the P&L statement. Consolidation is forcing them out of the business, or, if they are lucky, they are being pushed back into production. Or they can take a pay cut.
Yet the BOM will still have the full managerial and regulatory responsibilities he had before. And that’s no easy transition. Most BOMs who are now moving back into production face “overwhelming psychological and financial hurdles,” says Rick Peterson, of recruiting firm Rick Peterson & Associates in Houston.
“When managers were first being moved out of production decades ago, my advice to them was to never give up their books,” says Peterson. However, time constraints from the growing responsibilities—along with production caps, made that difficult for many, he concedes. “Those who were able to manage have a better chance of survival. They can even go back into production altogether, because a good producer will always make money.” But, for many BOMs who weren’t able to manage this, he feels their future in the industry looks pretty bleak.
Over the last 20 years, mounting compliance and HR issues made it virtually impossible for branch office managers (BOMs)—particularly those at larger branches of wirehouse firms—to manage and keep their own books of business. Many were subsequently forced out of production as their firms either out-and-out forbade it, or capped it to the point where it didn’t really pay to keep a book at all. For example, roughly two years ago, UBS capped its managerial production at around $100,000, says Peterson, in what he believes was an attempt to try to phase out producing BOMs.
Then came the nation’s biggest fiscal crisis in more than 70 years, and the rules about branch manager production began to change once again. The financial services industry was severely downsized; there were far fewer millionaires in the U.S., and some firms were severely cutting managerial compensation, Peterson says. “Hundreds of managers—particularly at UBS and Morgan Stanley Smith Barney—are going back into production,” he explains. “Many managers have seen their pay cut by at least 30 to 60 percent, and the only way they can make any money is to build a book."
As of press time, UBS had not responded to several requests for comment.
The shift back into production does not appear to be the case at the remaining wirehouses—Wells Fargo Financial Advisors or Merrill Lynch—at least, not yet. Teresa Dougherty, VP, Corporate Communications for Wells Fargo Advisors, says approximately 25 percent of the firm’s 800 branch managers produce—a number that’s remained little changed over the last five years. “And the option to produce remains up to them,” she says. Peterson adds that, despite the volatile stock market over the last two years, the number of producing managers at Merrill Lynch has also remained fairly constant.
MSSB spokesperson Christine Pollack confirmed that, as a result of the firm’s reorganization into complex structures in September, nearly 100 former non-producing managers were asked to go back into production.“A small number have chosen to go back into production as an FA,” she says. The firm subsequently developed and launched, in December, the Transitioning Manager Business Development Program, a “highly customized and personalized development program to help former producing branch managers go back into production and rebuild their practices.” It has four components: quarterly workshops, monthly calls with a personal business coach, monthly group coaching calls and monthly webinars. Currently, 42 former non-producing managers are participating.
“I don’t know of any other Wall Street firm that has anything like this,” says John Palazzetti, a former Smith Barney BOM who is currently MSSB’s director of Professional Development.
Still, for managers at UBS and MSSB who relinquished their books years earlier, Peterson believes being pushed back into production can be a nightmare. “They have to cold call just as they did 20 years ago—but in a horrible economy. Or, they can look to join a team of reps in the office who might make them a very junior partner. Many of their reps will now view them as business rivals. They have all the same managerial responsibilities they did before, and they’ve got to find time to build a book on top of that.”
He cites UBS as an example.“With around 8,000 brokers, the firm has become smaller than ever. Roughly 150 of their branch managers have moved back into production over the last year or so. I would estimate there is a combined total of about 500 branch managers in the industry who’ve been forced back into production. And, I can tell you most are extremely unhappy and looking to get out. I have about 180 branch manager resumes on my desk right now, and I have virtually nothing for these folks.” One, he says, is from a UBS manager who went from making $600,000 two years ago to under $100,000 today. “This is not an uncommon scenario.”
A legacy SB branch manager, who left his job last year, concurs. “Those numbers sound about right to me. I know a number of long-time managers who were very successful and are now making far, far less than they used to.”
“Most of the managers I know who are going back into production are getting a year’s salary as they transition and build a book,” says another former legacy SB BOM who requested anonymity. “The problem is, building a book can take years. Perhaps if you’re 30 years old and have 2 years management experience, this will work for you. But, a lot of the guys I worked with feel they’re being screwed.” (MSSB PR executives couldn’t make other BOMs available to us by press time.)
More bad news for MSSB BOMs appears to be on the horizon. MSSB will probably close 120 additional U.S. offices to eliminate overlapping locations in its joint venture with Smith Barney launched last year.
U.S. outlets will shrink to around 750, said the unit’s president, Charles Johnston, on April 23 in an interview at an industry conference in New York. MSSB had 870 domestic locations as of March 31, down from 958 on June 30, 2009. The timing of some decisions will be driven by the branches’ leases, which are often 10-year terms, Johnston said.
“There’s overlap in just about every market in the country between Smith Barney and Morgan Stanley offices,” Johnston said. “There’s no grand plan to dramatically shrink the footprint, but there’s an awful lot of no-brainer decisions when you do a deal like this.” The firm plans to keep its 18,000-member brokerage force at about the same number, he said, adding, “growth outside of the United States is going to be much more significant.”
Attrition was strong when the merger was first announced, particularly on the Smith Barney side, where Mr. Johnston was president, but leveled off to record lows among the top 50 percent of brokers last quarter, he said. He also confirmed that many Smith Barney branch managers have left.
This could be a trend in the making and ultimately be seen at more firms, says Mindy Diamond, president of Chester, NJ-based Diamond Consultants, a recruiting firm. “While being a non-producing manager doesn’t have the appeal it once did—mainly because of so many compliance responsibilities—it still has some swagger. Being asked to go back into production is seen as a slap in the face.”
Diamond says she gets resumes daily from branch mangers all over the country. “Unfortunately, the supply far outweighs the demand. I tell managers if they can build a book to absolutely do so. It may be tough to hear at first but, in the long run, I believe managers who go back into production will be in a better stead. As the industry continues to change and consolidate, non-producing managers risk becoming seen as mere overhead.”
Those not willing to wait it out are looking at regional firms and, in great number, the independent space, Diamond says. “They feel they’ve spent a lot of time developing good relationships with their reps, and their reps will follow them into the market. The independent model is the most sustainable trend of the future—if they want to stay in this industry,” she says.