November 17th, 2009

Merrill Lynch, Morgan Stanley Battle Independent Brokerages For Wealthy Investors

Full service brokerages such as Merrill Lynch (owned by Bank Of America Corp.), UBS and Morgan Stanley Smith Barney may have to up their efforts if they want to retain their clients. Last year, about 30 percent of the world’s millionaires withdrew their assets or even left their wealth management firms completely. In addition to that, about 46 percent of wealthy investors have said that they’ve lost confidence in their financial advisers.

Wall Street Bull

Financial Advisers Gain

This is good news for independent advisers however, as they stand to gain about $50 billion in assets this year. On the other hand, full service brokerages will lose about $180 billion in assets. According to Charles Geisst, a finance professor at Manhattan College in New York, brokerage firms need to move to fee-based compensation entirely or else investors will continue to be sold a wide range of investments. These products may be stock issues, annuities or mutual funds.

According to Geisst, independent advisers at brokerage firms are targeting customers who have at least $500,000 in invest-able assets. They primarily focus on investment advice and also branch into advice including insurance and estate planning. Their compensation comes from fees and commissions. The Securities and Exchange Commission regulates financial advisers that are registered and their services can range from tax planning to retirement savings.

According to Discovery Database, a sales and marketing firm in New Jersey, Merrill Lynch recruited 96 advisers last month and Morgan Stanley Smith Barney added 54 advisers. Bank of America is also adding advisers and hoping that assets and clients will follow as well. Bank of America even started a $20 million campaign to ‘revive ’ Merrill Lynch’s bull logo and attract potential clients. Other firms have also set up some incentives for investors. For example, Charles Schwab and Fidelity are reimbursing transfer fees and offering some commission-free trades to new clients who set up portfolios through an adviser. At many of the bigger brokerages, top advisers are receiving retention bonuses so that they do not leave (and so their clients will stay as well).

Some Clients Stay

Even though some firms that offer a more customized approach can boast about clients switching over, not all clients will move. Charles Schwab has gained $29 billion in net new assets over the last three quarters and net inflows increased 44 percent in the third quarter from the previous quarter. According to James Wiggins, a spokesman for Morgan Stanley, $1.5 trillion in client assets demonstrates they (Morgan Stanley Smith Barney) are serving their clients well. You should also note that full-service brokerage firms hold more than half of the $8 trillion in client assets. With figures such as these it may look like full-service brokerage firms are losing clients, but they are not down and out yet.

About the banks

Merrill Lynch Bank USA

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UBS Bank

UBS is a leading global wealth manager, a leading, global investment banking and securities firm, and one of the largest global asset managers. In Switzerland, UBS is the market leader in retail and commercial banking. With headquarters in Zurich and Basel, Switzerland, UBS operates in over 50 countries and from all major international centers.

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Morgan Stanley Bank

Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. The Firm's employees serve clients worldwide including corporations, governments, institutions and individuals from more than 600 offices in 36 countries.

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Bank of America

Bank of America is one of the world's largest financial institutions, serving individual consumers, small and middle market businesses and large corporations with a full range of banking, investing, asset management and other. It operates in 32 states, the District of Columbia and 30 foreign countries.