Private Wealth Management Employers: The Players

by Derek Loosvelt | March 10, 2009

With many of the old boundaries between banking, brokerage and insurance crumbling, today's financial services companies, whatever form they take, all must provide component products from each of the major industry areas. Banks offer insurance products, such as annuities and life insurance, while brokerage firms offer bank products, like checking accounts and mortgages, for example. This is especially true in private wealth management, where a variety of services from banking, brokerage and insurance can be marketed to the same client.

Banks

In the financial services industry, size still does matter. Consider this: the top three Wall Street investment firms' (Merrill Lynch, Goldman Sachs and Lehman Brothers) combined market capitalization is less than the market capitalization of Citigroup's alone. With muscle like that, banks like Citigroup have been able to buy up brokerage firms since 2000, although the rate has recently slowed. Of the money center banks, Citigroup, Bank of America, JPMorgan Chase, Wachovia, Bank of New York, SunTrust and Mellon rank among the largest that have active private wealth management divisions. Regional banks offering investment services through their own broker/dealer probably also have some type of private wealth management services, if only through their banks' trust departments. The quality of services and depth of knowledge may vary, however, amongst the smaller banks. Even savings and loans firms like Washington Mutual provide some trust and estate services, which are key components of private wealth management.

Banks sell a multitude of products, often providing captive or proprietary services for their clients, as well as general services. These are special product offerings packaged by the bank, and are only made available to clients of that bank. Such services might include a portfolio manager, who only manages money for clients of the bank. This has been a great advantage for banks in that clients will be less likely to move to another firm, especially if they value the services of a portfolio manager doing a good job.

In general, of the various industry roles, banks pay the lowest commission rates to their private wealth managers, because many of their private wealth management clients may already be clients of the bank, doing business in other areas such as commercial banking or mortgages, and not because banks are stingy by nature. Clients may also do business with the bank because it has a good reputation and well-known name. A client might, for example, be persuaded that Bank of America is the place to do business because of the 692 commercials they see about it every day. The banks' ability to attract clients will greatly aid a private wealth manager. Though they might be paid lower commission rates, it doesn't mean they will make less money. The best private wealth managers tend to make about the same amount of money no matter which company they work for.

Wirehouse

"Wirehouse" is an industry term for a large national broker/dealer. Merrill Lynch, Goldman Sachs, Lehman Brothers and Bear Sterns are all examples of wirehouses that also provide private wealth management services. Wirehouses usually provide as many services as large money center banks when it comes to private wealth management. Like the banks, they also provide a number of proprietary or captive services, such as private portfolio managers and specialized private equity, which can boost client retention. Be warned, however, that proprietary services also have the drawback of not letting a private wealth manager move easily from one firm to another (with their clients, at least), hence the name captive services. Wirehouses also compensate managers on the lower end of the payout scale, but just like money center banks, they also attract more clients because of the perceived prestige of their names and reputations. Although this won't make finding clients easy, it might make it easier. A funny thing about money is that when clients turn a lot of it over to a manager, they want to know that the firm will still be there the next day. With a wirehouse, clients often get the comfort they seek from a known name.

The emphasis on investment is what differentiates wirehouses from banks, as they typically offer a broader array of investment options. Although this focus is disappearing as banks continue to buy brokerage firms, banks still tend to rely more on captive, in-house products than a broader set of investment products that you find in a wirehouse.

Regional and boutiques

Legg Mason, A.G. Edwards, Jefferies and Raymond James are all examples of regional firms that offer private wealth management services. Though not as well known outside the industry, these firms provide an array of products and services with a small firm focus on personal service. They also offer some proprietary or captive products, but generally allow their reps the freedom to sell products off their wholesale list without incentives to move proprietary products. Regional firms offer a slightly higher payout (approximately 10 to 15 percent higher) to wealth managers in most instances than banks or wirehouses, but working to land clients will be a little harder at a regional firm than at a better-known bank or brokerage firm.

Boutique firms are much smaller in size than the regionals and will usually have less than 100 reps. Not all boutiques will offer private wealth management services, and whether or not they do depends primarily on what types of products they emphasize. A small firm that specializes in smaller stocks will probably not have a very accomplished wealth management department.

Independents/insurance

A growing number of private wealth managers are choosing to open private practices with independent contractor and insurance company broker/dealers providing regulatory, product and compliance support. They also offer much higher payouts than the other types of firms--often twice as high. But these firms do not offer brick and mortar locations and other things like telephone systems, computers, etc. These necessities must be paid for out of the rep's own pocket. They also don't offer in-depth and in-house expertise in trusts, estates, tax and asset management like the regional firms, wirehouses and banks. However, private wealth managers working with an independent broker/dealer are free to hire their own experts and develop their own practice in a manner that best suits them and their clients. One caution: this is an option that should be reserved for only the most entrepreneurial of people. Especially at the beginning of your career, when the learning curve looks like the crux of a hockey stick, it's important to have the support of those who have experience in the business.

Filed Under: Finance


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