There is a tremendous sigh of relief for First Republic advisors and their clients after a very chaotic six weeks. Now, instead of the urgency to leave, advisors have a new great added choice of platforms to choose from to continue to service their clients. We hope to add some experience and historical precedent of what advisors should expect with the acquisition by JPMorgan Chase.
JPMorgan Chase has made well over 15 significant acquisitions of banks and wealth management platforms over the last couple of decades. Of note, the acquisitions of Bank One, Bank of New York, Robert Fleming Holdings, Hambrecht and Quist, Highbridge Capital, and Bear Sterns can offer great insights of what to expect with both the positives and the challenges.
Positives for First Republic Advisors:
- Client Retention and Acquisition – The business card of JPMorgan Chase is one of the best brand names in the business, with outstanding client recognition. FRB clients should be assured to know their assets are safe, the platform is robust, and the service they expect from their advisors should continue for the near future.
- Access to JPMorgan’s resources: The acquisition will give First Republic advisors much greater access to JPMorgan’s vast resources and platform, including its technology, research, investment banking, trust services, lending and retail banking.
- Compensation – The vast majority of traditional advisors who came from traditional banks/brokerages like MS, Merrill, UBS, etc. should be on an equal if not slightly greater GRID payout than before. In addition, all front ends, back ends, deferred comp will be honored. As per historical precedent, a retention bonus though only meaningful for a handful of advisors who are not locked up on a deal or owe a significant amount back to the firm. (See our report, ‘Historical Retention Bonuses of Acquired Banks Advisors’)
Challenges for First Republic Advisors:
- Culture- First Republic was one of the most culture-rich firms ever to exist with a client service reputation that was second to none emphasizing client service and relationship-building. The mantra was always, ‘How can we get it done for our clients and not If we can we get it done.’ Advisors at FRB are concerned about the reputation of JPMorgan, even if very successful, as a more institutional and bureaucratic culture. Their core salary and bonus Private Banking model ‘owns’ the client, is very centered on the benefits of its closed architecture investment platform, with many wealth advisor tentacles attached to the client, rather than the entrepreneurial relationship of any one advisor. Therein, about 75% of advisors’ annual comp. for all private client advisors is subjective and relies upon the profitability of the entire bank.
- JPM Securities (Bear Stearns) division, which is the main acquirer and will be the model for most all FRB advisors, has been very challenging for previously acquired advisors. Many quote its reputation as “the red-headed stepchild of the private bank,” whereas the vast majority of top clients are covered by the private bank’s salary bonus model and the brokerage unit are looked down upon as just overpaid brokers. There is no common cultural reputation since it remains an hod-podge of legacy brokers and advisors from Bear Sterns, some traditional advisors from the street and a now a recent integration of old Chase Manhattan bank advisors and retail branch advisors who focus on a lower net worth client.
- Client retention: The name of First Republic Bank will, just like all other acquisitions, will dissolve in a short period of time. Some clients may be reluctant to continue working with First Republic advisors after the acquisition, particularly if they perceive JPMorgan as a less personalized or boutique-style firm. Advisors may face difficulties adjusting to new systems, processes, and cultures. As an example, the Bear Stearns systems have a reputation as antiquated and not yet fully integrated into the core private bank. The process of opening an account and KYC is highly intrusive. Certainly, the very low-cost competitive loans offered will become more mainstream pricing by Wall Street. Advisors will need to work hard to retain their existing clients and build relationships with new ones to maintain productivity and growth.
- Private Banking Leads: The symbiotic relationship at FRB between the commercial bank and the private bank was one of the most powerful growth opportunities for advisors allowing upwards of 93% to hit their back-end hurdles. Those who have future revenue hurdles may find it challenging to achieve the level of growth under the old First Republic model. FRB had well over $10B+ of annual leads offered to advisors to convert into wealth management relationships should not be expected to continue and most any major investment banking and commercial banking leads will be tightly controlled for the private bank of JPMorgan Chase.
Some of this information comes from firsthand experience since I too was an advisor at Hambrecht & Quist, which was one of the fasting growing, deep cultured and entrepreneurial wealth management firms on Wall Street. One of the toughest days of my career was after 14 years of service, managing a book of $1B of high caliber clients, I came one day into my office only to receive a JPMorgan Chase welcome baseball cap on my desk.
In addition, through the years I have counseled countless Bear Stearns advisors, which is also a good barometer for First Republic advisors about the significant benefits and its challenges in with the acquisition JPMorgan Chase.
Overall, the acquisition of First Republic’s wealth management business by JPMorgan presents both opportunities and challenges for financial advisors. While the acquisition will give First Republic advisors access to new resources, they will also need to navigate the challenges of integration, client retention, and cultural differences. Ultimately, success will depend on the ability of advisors to adapt to the new environment while staying true to their core values and principles. At the least, it offers one more choice that advisors have when choosing a platform to service their hard-earned clientele.
PS- Please see our report, ‘Competitive Platform Cultural and Economic Positives and Challenges’