News reports this week that Citigroup is set to merge 30 more offices should not come as any surprise. Although the firm wouldn’t comment, Citigroup’s closing of Smith Barney branches would follow trends at other Wall Street firms, such as Morgan Stanley. While exact numbers are surprisingly hard to come by (even the industry lobby, the Securities Industry And Financial Markets Association, said it didn’t have data on all the firms), the trend is quite clear.

Broker/dealers everywhere are trying to figure out how to improve productivity (and therefore profits) while holding costs down. Closing offices also means that there are fewer branch managers. And since advisor headcount is up, supervisors are being spread thin. The trouble is, say some industry consultants, consolidating branch offices may not actually result in lower costs and increased productivity.

"Management loves talking about economies of scale," says Andre Cappon, president of CBM Group, a New York-based industry research and consulting firm. "They feel that if you take two branch offices with 20 brokers each and merge them, you’ll see significant cost savings due to lower unit costs for space, fewer assistants relative to the number of brokers, one branch manager instead of two, and the like."

However, recent CBM analysis of major brokerage firms’ branch networks suggests that what drives the profitability of a branch office has little to do with the number of brokers. "We found that, after a certain minimum of 15 or 20 reps, headcount becomes irrelevant to profitability in terms of percentage of revenue and generating a higher profit contribution margin," Cappon says. True economies of scale, he says, are realized by having top producers in a given branch.

"Top level producers lower the cost of running an office," he says. "So, BOMs should be seeking out the best—not necessarily more—producers."

Okay, so that sounds pretty obvious. But, it’s not easy. Just ask Stuart Silverman, president of Fusion Financial Group, an independent financial advisory network based in Elmsford, NY. Silverman spent over a decade as a regional president at the now-defunct VeraVest Investments, where his job was to "help the firm to cut some of the fat and extra overhead that goes along with distribution, while at the same time growing sales," he says.

Consolidation may cut costs, but that doesn’t mean it will help drive new revenue, he says. "Great BOMs drive productivity primarily through building strong relationships with their financial advisors and helping them build their businesses," he says. "But, one can only manage so many relationships."

Like Cappon, he thinks that running a "super-sized" office leaves the BOM little time to build relationships properly. Additionally, he says many firms maintain a "numbers game" recruiting mentality where they ask a BOM to focus on recruiting and spend the lion’s share of his time with new advisors, rather than helping top advisors grow.

This can be detrimental to long-term growth: Top advisors feel neglected and may hit a wall because nobody in management (except the compliance department) seems to be focused on them.

A wirehouse BOM in the northeast—who asked not to be identified—wholeheartedly agrees. "There’s a lot of pressure in this industry to fill seats," he said. "And, I think it can ultimately hinder the profitability of a branch. Recruiting high-level producers is the ideal," he said. "But that takes time and effort. Upper management doesn’t want to see an empty office chair. I think a lot of managers would rather wait for the best brokers—and spend more time helping their existing people make the most of their potential. That would be more cost-effective. But, given the pressure we’re under, it’s not always possible."