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 vast 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.
Client Retention and Acquisition Positives and Challenges
Most all advisors tell us that clients are finally at peace to know that their assets are safe with outstanding client recognition with one of the best brand names in the business, JPMorgan Chase. For future acquisition of clients, the name speaks for itself as a dominant investment bank, and commercial bank, with a stellar private bank division with UHNW clients worldwide. Long-term the brand and platform open doors and opportunities. Short term, for those advisors who decide to stay, there is a great opportunity to inherit clients from advisors who departed the firm who do not care to move for any number of reasons, existing lines of credit, conflicts at other competitive banks, or lack of inertia.
The name of First Republic Bank will, just like all other acquisitions, dissolve in a short period of time. Some clients may eventually be reluctant to continue or open new accounts, particularly if they perceive JPMorgan as a less personalized, more bureaucratic process and delivery of client experience. Also, some clients may already have had accounts at JPM with a negative experience. Advisors should also beware that some clients already have accounts at the Private Bank so expect a power struggle. There should be no expectations of lead flow like it was at the First Republic under the new JPMorgan model. Most major investment banking and commercial banking leads will be tightly controlled for the private bank of JPMorgan Chase. Advisors should expect to grow traditionally or ‘eat what they kill.’ Those who have future revenue hurdles, they may find it challenging to achieve the level of growth under the new JPM model.
Divisional Differences of JPM Private Bank vs JPMA
First Republic advisors will have full access to JPMorgan’s vast resources including world-class Investment Banking, Institutional Research, Trust Services, Sophisticated Lending, Global Traditional and Non- Traditional Asset Management Solutions, Retail Banking etc.. The magnitude of the offerings for advisors from FRB and their clients is infinitely larger than what they had and is extremely competitive with most any major bracket wirehouse/bank/brokerage firm.
Oddly, JPMorgan has yet to showcase the division that FRB advisors are part of until next week. Make no mistake, the division for all FRB advisors will be part of JPM Advisors, formally only recently known as JPM Securities (JPMS), which has been the Bear Stearns division. Many quotes its reputation as “the red-headed stepchild of the private bank,” whereas most of the revenues and profits are with the private bank’s salary bonus model. The JPMA division covers the mass affluent market but also some UHNW but is looked down on as the less profitable 50% commissioned brokerage model. This delay to showcase is likely by design, since not only does its reputation precede itself but they care to delay inertia, have advisors sign their deal as soon as possible, and retain as many advisors and their clients as possible.
JPMorgan is also a very successful culture-rich firm but significantly more institutional and bureaucratic. 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. By design, advisors who sometimes leave the platform only take about 40-50% of clients due to the stickiness of these legacy relationships.
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.’ Some say, JPMA may change their culture or try to change though advisors need to recognize the firm is very successful for a reason and not to overestimate their impact onto this very successful yet institutionalized, bureaucratic organization. In addition, advisors need to recognize that FRB failed, and regulations, compliance and oversight at JPMorgan will become an ever-increasing burden to their businesses which should come as a culture shock.
Operational Differences of JPM Private Bank vs JPMA
The JPMorgan Private Bank is the most powerful and successful model on the planet. It is a very well- oiled machine yet again is very centered on the benefits of its closed architecture investment platform and wealth management platform. The tentacles attached to the client are extensive, including Trust officers, Relationship Managers, Investment Managers, Lending Specialists, and Trust and Estate specialists among others depending on the client. Due to its power and importance to the global banking system, JPMorgan is also one of the most heavily regulated institutions including the Federal Reserve, including the FDIC, International Banking Regulations and FINRA.
Therefore, all advisors, whether JPMA or Private Bankers fall under heavier compliance, rules, and regulations. Whereas traditional brokerage firm advisors at Morgan Stanley, UBS or Merrill Lynch who operate an open architecture, commission-based platform are also very heavily regulated, advisors and their clients under these umbrellas have comparatively less burdensome oversight, mostly under FINRA rules and regs. The division of JPMA is similar to other brokerage firms but since it is owned by the parent bank JPMorgan, the core of operations is dominated by these added oversight, compliance, and regulations. As example: the process of opening an account is known to take weeks and KYC is highly intrusive. Whereas the technology is better than FRB’s, the common reputation of JPMA is antiquated and not yet fully integrated into the core private bank for a reason.
Compensation and Contracts
As expected, for those advisors who are ‘locked on deal’ with large monetary front ends, back ends, and deferred comp will all be honored. Advisors will now receive a higher GRID payout than FRB’s which should be on par with the competition like MS, Merrill, UBS, etc. In addition, asset awards and years of service awards should be added kickers to overall compensation. Salaries and T&E should be pegged to size of production or team revenue but much less generous than FRB’s. Also, though only available for some advisors, the retention bonus has essentially been announced with a range of about 100%- to 150%+/- of T-12 depending on several factors including; if ‘on deal’ and how much is owed and how much time is left on the contract; the size of team production; years of service, titles, functions, and some other subjective measures.
Everyone, no matter what the term of the old contract, should be mandated to sign a new 12-year contract which was surprisingly longer than the last Bear Stearns deal of 7 years and longer than its nearest competitor. Advisors also need to recognize that JPMorgan purchased and now owns all the assets of FRB, all its remaining advisors’ businesses, including your clients’ assets. Even though advisors rightfully believe they own their clients, JPMorgan bought them and has every right to dictate terms to hold onto these clients and its future cashflow. They likely learned the hard way with their last acquisition of Bear Stearns so will surely try to protect this new investment with potential stringent non- solicitation clauses, garden leaves, deferred comp, and even lockup provisions with JPMorgan stock should you ever decide to leave the firm in the future. Therefore, your ownership of your clients, to be a free agent, and to sign the contract under your terms with a firm of your choice today may look very different in the future. The firm will make it more difficult to move in future years with this new stringent new contract so therefore acquiring firms may not be as valuable to your business as it will now.