Future of our Industry

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B24's picture
B24
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So here's what I see...down the road, the "serve everyone" model is dead.  Most firms that are successful will fill a specific niche....UHNW investors (UBS, Goldman, etc.), HNW Investors ("wirehouse"-type model), mass-affluent (Jones,  Ameriprise, etc.).  There will be indy firms that can cross all spectrums, since they have more flexibility - large UHNW "boutique" firms down to small, solo "mom & pop" shops.
 
I think the firms that do not define themselves well will falter.  I think this may be what we are seeing at the wirehouses right now.  They on one hand, want to serve the HNW client, but on the other hand, they have 10-20,000 FA's (Morgan/SB, WF, Merrill) all vying for the same clients.  There aer only so many investors with $2mm+ out there, with a LOT of FA's chasing them.  Think about it - you have like 50,000 FA's just at those 3 firms chasing HNW investors around the country.
 
I think Jones could ultimately win the "mass-affluent" war if they stick to their niche serving the under-$2mm client, and the wirehouses continue trying to swim upstream, and abandoning their lower-producing FA's.  Marketing and focus will be key here.
 
I think the rise of indies and RIA's will create confusion in the market, as every indy/RIA out there is unique, so investors will have a hard time identifying what it is they do.  So marketing/branding will be critical for indies.
 
Thoughts?

Greenbacks's picture
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One thing I agree with is that wire houses are history. Thank God!
 
I think experienced <?: prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Indies will thrive.  We can still make money on small account. <?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />
 
 
 

Squash1's picture
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Joined: 2008-11-19

I also think Jones will struggle with the clients with $250K+ who want more in terms of options.. Not just funds.

Borker Boy's picture
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The indy model will expand but will continue with mediocre production per advisor. The model was just about to explode, but Madoff, et al, destroyed the momentum. 
The wirehouse model will recover and continue to serve the HNW population.
 
Jones will continue to serve the $50/mth DCAers.

Squash1's picture
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Borker Boy wrote:
The indy model will expand but will continue with mediocre production per advisor. The model was just about to explode, but Madoff, et al, destroyed the momentum. 
The wirehouse model will recover and continue to serve the HNW population.
 
Jones will continue to serve the $50/mth DCAers.
 
I agree but a mediocre production($200-400K) at 70%(90%- expenses) is still a decent living...Similar to a wirehouse guy doing 800K @ 40%

B24's picture
B24
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I guess you all missed my point about indies.  There will still be lots of little solo indies doing 200K in production.  But there will be more and more LARGE, focused indy firms doing HUGE numbers.  Since they aren't beholden to some wirehouse model or marketing program, they can basically serve whoever they want, however they want.  I think eventually, most UHNW investors will be served by niche/boutique/family office RIA firms.
 
The comment about Jones serving $50 DCA clients is just stupid.  That is the model for FA's starting out, but most experienced advisors at Jones are paring back their books to 300-400 clients and 100-150mm AUM.  Here's the typical scenario for a 10-20 year advisor at Jones going forward:
800 Clients all across the board
150mm AUM
Do a few Goodknights and scale back your book to just 300-400 clients in Advisory with 100-125mm AUM, and gross $1mm.
I'm telling you, they are all starting to see the light.  This is good for everyone...the FA, the new Goodknight FA, the client (who never got attention), the firm.
 
Everyone thinks Jones is stupid, but I'm telling you, they know EXACTLY what they are doing.  It's obvious.  It's black and white.  They are promoting Advisory, Goodknights, and Financial Planning like the way they used to promote American Funds.
 
And I can tell you, the American Funds guys are feeling the heat.  I have seen my wholesaler more in the past 6 months than I saw him in the past 3 years.  And I am doing FAR less AMF business than I used to.

Squash1's picture
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Joined: 2008-11-19

B24, doesn't the Jones model reach a saturation point? I think Jones should go to two man offices to cut down on real estate expenses and other operational expenses.
There are 26 jones offices within 9.7 miles of my house...6 doing real well, 6 doing ok and the rest are starving...with 5 new people taking over small offices ($3M or less)

bspears's picture
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Joined: 2006-11-08

B24, do you ever feel as if you post to much?

Spaceman Spiff's picture
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I just had this conversation with a buddy of mine in HQ this morning.  He said there's a rumor floating around up there that says they're looking at lowing the minimums on Advisory.  Drastically. 

The big bogey at Jones has always been $100 MM.  If you can hit that, you're a big deal.  Most regions don't have but a small handful of FAs who can say they have $100MM.  I think my region may have two.  
 
If those guys with $100 MM offices are hitting Seg 5 numbers ($40K four month rolling average) then they're doing about $500K a year.  I can get there with only $37 MM AUM in Advisory Solutions at full charge.  If a guy could bring in $500K a month into that platform he'd be at Seg 5 numbers in less than 6 years. 
 
And what if all GKNs were required to have a certain percentage of Advisory Solutions clients that they pass to their noob.  Gets that ball started even faster. 
 
I think the future looks incredibly bright for Jones. 

Ron 14's picture
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Joined: 2008-07-10

Spaceman Spiff wrote:
I just had this conversation with a buddy of mine in HQ this morning.  He said there's a rumor floating around up there that says they're looking at lowing the minimums on Advisory.  Drastically. 

The big bogey at Jones has always been $100 MM.  If you can hit that, you're a big deal.  Most regions don't have but a small handful of FAs who can say they have $100MM.  I think my region may have two.  
 
If those guys with $100 MM offices are hitting Seg 5 numbers ($40K four month rolling average) then they're doing about $500K a year.  I can get there with only $37 MM AUM in Advisory Solutions at full charge.  If a guy could bring in $500K a month into that platform he'd be at Seg 5 numbers in less than 6 years. 
 
And what if all GKNs were required to have a certain percentage of Advisory Solutions clients that they pass to their noob.  Gets that ball started even faster. 
 
I think the future looks incredibly bright for Jones. 
 
And how the hell will he pay his bills until then ?

Mucho de Tejas's picture
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Borker Boy wrote:
The indy model will expand but will continue with mediocre production per advisor. The model was just about to explode, but Madoff, et al, destroyed the momentum. 
The wirehouse model will recover and continue to serve the HNW population.
 
Jones will continue to serve the $50/mth DCAers.
 
No, it IS exploding. And with larger producers then you think, especially the hybrids that allow outside RIAs.

buyandhold's picture
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I wouldn't count out the wirehouses. Just to name one example, Merrill still has the brand name, talented advisors and the institutional memory. Maybe that has changed with the recent crisis, but most of my Merrill prospects still think very highly of their advisors, and remember, the FAs didn't sink the firm. I think the Merrill clients understand that.Jones could be situated in a good place, but not many $1 million accounts are going to walk into a one-man office. They want more wood-paneled offices and a sense that if their advisor leaves their is a backup plan.  And Jones has to market itself more. Nobody knows who the hell we are. Maybe because the firm is well known in St. Louis they are blind to that fact.I'd second and third everybody who says that fee-based accounts are the future, but they have to be actively managed, imo. Throwing people into funds and putting a 1.35 pct wrap around them .... well, I don't get it, but then again the kool aid they served me at Eval Grad said that was not in the client's best interest.For the ADVISORS, well, the indy channel seems the best route for us.Oh, and Borker, I have many 100/mth DCAers, and in 30 years, I expect to be getting their 401k rollovers.

Sportsfreakbob's picture
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Joined: 2008-08-24

There are a lot of FA's leaving the wires to go to an existing branch of an indie firm. This leads me to think that a growing trend will be larger branches of indies, with a common brand, and a structure similiar to a wirehouse branch, but with an indie feel - with say 8-10 brokers or even a few more. By wirehouse type structure i mean only to the extent that maybe they have some in house ops, there is a grid that is not the same as the indie grid but much better than the wirehouse grid, they have sales meetings, more wholesaler support, etc.I have run accross a coupel of situations like that in my area, and i wonder if you will start to see that model proliferate.

B24's picture
B24
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bspears wrote: B24, do you ever feel as if you post to much?

No. I like the pick-and-roll.

Sellout21's picture
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Joined: 2009-01-04

I don't understand all the posts about wire guys going to indy's, and that indy's are going to be the big winners in all of this?  I work in a wire inside a very large branch and the attrition isn't anywhere close to what was expected.  We've lost about 10-12% of brokers, and more than 1/2 of those people were trainees.  The vast majority of brokers are not in the "penalty box", and are not even concerned about it.  If anything, wire guys are going to jump to another wire to pickup a big check.
I personally thought there would be more attrition, but honestly it is not happening.  I also thought I would lose more clients as a result of the negative media, but that's not happening either.     

noggin's picture
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I like the back and forth of b24 and spacemanspiff. Spiff says it is very unusual at Jones to have 100M AUM and b24 says that that is very common. I wonder who is right? Personally i believe it varies by where you are located and how long you have been in production and frankly whether you are any good at it. I have never understood how Jones will be able to replace those 20-30 year vets and increase production. The ones that i saw coming in the pipeline were no great shakes.
 
The essential formula is that we will give you about 38% of what you produce and if you have Lp and trips then we will give you back another 10-15% of your money. The LP is a very illiquid investment much like non traded REITs that pay about the same amount as partnership. Jones people don't know about them because they are not allowed to sell them. I know for myself as a result of having two partners in the business for over a year now that I have definitely learned more about how to be a well rounded financial adviser since being independent. i think the direction that Jones is doing with legacy and goodknights is a step in the right direction and maybe it will slow the turnover in their new advisers. There really are worlds out there not dreamt of in your philosophy.....

Moraen's picture
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Joined: 2009-01-22

Having more flexibility is going to be king going forward.  Wirehouses and regionals simply have their hands tied when it comes to marketing their practices.  RIA's and indy's for the most part just don't.
The sky is the limit in the Indy world.  You can mold your practice how you see fit.  The indy's who produce mediocre amounts are those that still model their practice after where they learned their trade (Jones, wirehouse, etc.).  Let me qualify that:  If you were producing around 150k at another firm, you are likely only producing 200k - 250k if you are still running the same program.  Those who were running stellar practices at the wires and regionals, will likely still be running stellar practices.
 
Those indy's that create several lines of business.  Choose to grow not only their personal practice, but their business in general are going to become this country's next millionaires.

Borker Boy's picture
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Joined: 2006-12-09

Advisory Solutions: once taboo, now the magic elixir
 
(In less than 6 months)

Ron 14's picture
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Borker Boy wrote:
Advisory Solutions: once taboo, now the magic elixir
 
(In less than 6 months)
 
LOL - Exactly, when I was a year in and Advisory Solutions wasn't yet around, I was asking every Vet I knew about their C share business and why they aren't doing more of it.  I was smacked down by every one of them.

nestegg's picture
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Since when is Advisory taboo lol

B24's picture
B24
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Moraen wrote: Having more flexibility is going to be king going forward.  Wirehouses and regionals simply have their hands tied when it comes to marketing their practices.  RIA's and indy's for the most part just don't.
The sky is the limit in the Indy world.  You can mold your practice how you see fit.  The indy's who produce mediocre amounts are those that still model their practice after where they learned their trade (Jones, wirehouse, etc.).  Let me qualify that:  If you were producing around 150k at another firm, you are likely only producing 200k - 250k if you are still running the same program.  Those who were running stellar practices at the wires and regionals, will likely still be running stellar practices.
 
Those indy's that create several lines of business.  Choose to grow not only their personal practice, but their business in general are going to become this country's next millionaires.

Great point. Most indies in my area are either really small producers (like under 250K), or large wealth management firms (we have two of the largest 10 in the nation in my area).

But you're right - those little indies are pretty much doing the same thing and not really trying to grow (or not trying real hard). The larger firms I am referring to have 26 and 45 employees. One has like 500-700mm AUM, the other has like 850mm. One is fee-only, one is fee-based. So it's not like you have one guy doing all that production, but they are very different firms than a little solo shop or wirehouse guy.

B24's picture
B24
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noggin wrote: I like the back and forth of b24 and spacemanspiff. Spiff says it is very unusual at Jones to have 100M AUM and b24 says that that is very common. I wonder who is right? Personally i believe it varies by where you are located and how long you have been in production and frankly whether you are any good at it. I have never understood how Jones will be able to replace those 20-30 year vets and increase production. The ones that i saw coming in the pipeline were no great shakes.
 
The essential formula is that we will give you about 38% of what you produce and if you have Lp and trips then we will give you back another 10-15% of your money. The LP is a very illiquid investment much like non traded REITs that pay about the same amount as partnership. Jones people don't know about them because they are not allowed to sell them. I know for myself as a result of having two partners in the business for over a year now that I have definitely learned more about how to be a well rounded financial adviser since being independent. i think the direction that Jones is doing with legacy and goodknights is a step in the right direction and maybe it will slow the turnover in their new advisers. There really are worlds out there not dreamt of in your philosophy.....

Actually, I didn't mean to suggest that 100mm AUM is common. I was talking about what the average guy at Jones WITH 100mm looks like as far as the structure of their practice.
Don't forget, most advisors coming into this business in general don't look that great. They are molded and gain experience over the years. I am sure if someone looked at you the day you started, and compared it to today, their opinion would be much different.

And the way they will replace those 20-30 year vets is simple. You can't do a "Sunset Plan" (or whatever the retirement deal is called) with a retiring veteran until you are with the firm 3 years (and profitable I believe). So the veterans are turning over their books to experienced advisors (many will have far more than 3 years under their belts). In addition, many of those vets have already done Goodknights, and established an office for other rookies as well. It's just like the way wirehouse teams perpetuate themselves, except in different offices.

footsoldier's picture
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B24-
 
When the one and only rep in my old region decided to do the sunset program, the RL brought in a rep in the red from a different region and then to add a little salt in the wound put his own goodnight and close friend in the same office. Handed both 100M and now they are leaders in the region.
 
Made the other reps in the same small town feel so good. To this day three years later the reps in the town are not working together and have created a sense of competition between them. Maybe its different in your region.

Borker Boy's picture
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Joined: 2006-12-09

I haven't looked at the policy regarding the Sunset plan, but I do know we have a guy in our region who was starting from scratch and was picked up by a vet to do the plan with him. Pretty good gig.
The 3 years and profitable deal doesn't make sense to me. If I'm profitable, I doubt I'm going to be interested in abandoning my office and moving to another town just to have a chance at getting a bigger piece of the pie. Maybe, but probably not. 

Baba Booey's picture
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B24 wrote:So here's what I see...down the road, the "serve everyone" model is dead.  Most firms that are successful will fill a specific niche....UHNW investors (UBS, Goldman, etc.), HNW Investors ("wirehouse"-type model), mass-affluent (Jones,  Ameriprise, etc.).  There will be indy firms that can cross all spectrums, since they have more flexibility - large UHNW "boutique" firms down to small, solo "mom & pop" shops.
 
I think the firms that do not define themselves well will falter.  I think this may be what we are seeing at the wirehouses right now.  They on one hand, want to serve the HNW client, but on the other hand, they have 10-20,000 FA's (Morgan/SB, WF, Merrill) all vying for the same clients.  There aer only so many investors with $2mm+ out there, with a LOT of FA's chasing them.  Think about it - you have like 50,000 FA's just at those 3 firms chasing HNW investors around the country.
 
I think Jones could ultimately win the "mass-affluent" war if they stick to their niche serving the under-$2mm client, and the wirehouses continue trying to swim upstream, and abandoning their lower-producing FA's.  Marketing and focus will be key here.
 
I think the rise of indies and RIA's will create confusion in the market, as every indy/RIA out there is unique, so investors will have a hard time identifying what it is they do.  So marketing/branding will be critical for indies.
 
Thoughts?
 
How is Jones going to win the "mass affluent" $2mm and under, when the average current client has $50k?  It's a big move upstream to attract and retain $500k+ accounts.

Ron 14's picture
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footsoldier wrote:B24-
 
When the one and only rep in my old region decided to do the sunset program, the RL brought in a rep in the red from a different region and then to add a little salt in the wound put his own goodnight and close friend in the same office. Handed both 100M and now they are leaders in the region.
 
Made the other reps in the same small town feel so good. To this day three years later the reps in the town are not working together and have created a sense of competition between them. Maybe its different in your region.
 
It isn't different in other regions. It is the same crap everywhere. Obviously those assets need to go to someone and that is fine. What drove me from Jones is the instant leadership roles that these FA's who get handouts accept. I am not going to sit in these meetings every other week and listen to some jagoff tell me how to build my business when he didn't even build his own.

Soothsayer's picture
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Ron 14 wrote:
 
It isn't different in other regions. It is the same crap everywhere. Obviously those assets need to go to someone and that is fine. What drove me from Jones is the instant leadership roles that these FA's who get handouts accept. I am not going to sit in these meetings every other week and listen to some jagoff tell me how to build my business when he didn't even build his own.
 
Why doesn't the Jones leadership realize or understand how divisive and destructive this practice is to the guy or gal who is actually living the example they were told about in the beautiful brochure titled, "Your Jones Opportunity".  I've said it before, and I'll say it again.  If you reward and recognize the right behaviors, you will condition the new advisors to go and try to be successful, to work hard, and to build their businesses the right way.  When you drop $100MM in some dumbsh*t's lap whose was failing the day before, and make him a Regional Leader a year or two later, people start to think, "WTF?"  The fix is never going to be perfect, but they cannot continue to ignore one of their biggest weaknesses. 

wolverine1945's picture
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Joined: 2008-12-04

The small brokers under 500K will all go to regional  or independent firms with higher pay-outs or just leave the business.
 
The wire-houses, ML, MSSB,UBS, Wells will be home to brokers 500K and up, but many larger brokers, 1 Million+ have a huge incentive to go independent since the pay-outs are so good, and they can also sell their businesses when they retire.
 
The problem the big wirehouses have is that large producers are not cheap.  They get a higher-pay out, more support, more office space. 
 
 
There might not be wealth management at big firms in 10+ years.  All those small producers made the wirehouses a lot of money in the past, but the game has changed.

NOVA's picture
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Joined: 2005-01-11

How do they get tomorrows $500K guy is everyone beloe $500K today leaves?  Are they hoping to lure regional guys and independents as soon as they cross that line?  I don't see too much of that.

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