Although it remains a profitable business, wealth management has seen its margins squeezed over the 18 months, pressuring would-be wealth managers.
"Companies would have you believe this is all due to the fierce competition for top talent resulting in wage inflation," says Flo Salgado Yee of V&Y Partners, a New York-based recruiter. While there's some truth to their contention, Yee says employers are "pushing the envelope" by pursuing only those high-net-worth sales professionals with apparent "portable books of business." What's stressing the purse strings, she insists, is most likely guaranteed bonuses - in some cases good for two years or more - that firms are willing to pay for fat client books.
Such an approach runs counter to the Wall Street norm of seeking energetic youth. Two factors have created this counterforce in the retail brokerage business: a drop in individual investors' participation in the equity markets, and the so-called "Do Not Call" rule.
"Do Not Call has cut down on new brokers starting out," says Brad Hintz, an equity analyst for Sanford Bernstein. Indeed, cold calling is largely impossible today. "What can they do? Hold cocktail parties on their limited budgets?" asks Hintz. "Hang out at a country club?"
Consequently, brokerages are trying to give a level of service that can cultivate clients into high-net-worth accounts. "So you can see where that ready-made fat client book is even more attractive these days," says Hintz.
Value of Dual Roles
In addition, some high-net-worth managers act as portfolio managers, giving them an extra whammy. If a client has a good relationship with a manager at one firm, chances are they'll continue to invest with the manager if he moves to a new firm. Firms "even calculate the 'leakage rate,'" notes Hintz. "It's assumed that only about 40 percent of assets stay behind."
While firms are increasingly trying to establish their own brand loyalty with clients, they're working hard to hang onto the high-net-worth managers they do have. At the same time, they're trying to poach the best of the competition. "Hiring managers are totally focused on big returns in the short term with new professionals," says Yee. They're not "investing enough in the development of the talent they have or less expensive new talent they could hire over the mid and long term."