“We are Staying at JPM – How Bad Can It Be?”

In a scenario reminiscent of The Clash’s iconic song “Should I Stay or Should I Go,” First Republic advisors find themselves facing tough decisions. While JPMorgan Chase (JPMC) assures them that they will be treated differently, respecting their unique culture and franchise, skepticism abounds. Advisors are being enticed with promises that their former offices will largely remain intact, allowing for continued collaboration with colleagues, while benefiting from the new platform’s vast resources.

However, many advisors remain skeptical and are prepared to test the waters at JPMC, ready to leave if past issues persist or if future promises go unfulfilled. The departure of approximately 60% of advisors who didn’t trust that things would change speaks volumes about the difficulties faced in making this decision. Examining JPMorgan Chase’s history, including the Bear Stearns acquisition and the assimilation of around 200 other recruits over the past decade, reveals a telling narrative. Similar acquisitions of boutique firms by large banks have often resulted in clashes of culture and significant advisor departures.

For instance, the ill-fated merger between Credit Suisse and Wells Fargo eight years ago showcased a clash of cultures that led to a 50% advisor attrition rate. While some advisors integrated well, others still harbor grievances to this day. Another example involves Raymond James’ purchase of the specialized boutique of Deutsche Bank advisors six years ago, where an attempt to maintain the team and culture under the old name Alex Brown proved to be disastrous.

Now, JPMorgan Chase is establishing “private client” centers with distinct operating models and staffing, specifically catering to various affluent segments. This move raises questions about motives, such as why the offices of JPMA advisors are deliberately kept separate from FRB’s. Advisors from both legacies possess considerable talent, manage substantial portfolios, and serve high-net-worth clients. Furthermore, concerns arise that cost-cutting measures may eventually lead to consolidation, as is very common in big banks.

Adding to the skepticism, FRB advisors have been kept in the dark about the platform, contracts, and expectations following the acquisition announcement over the last three challenging months. The unveiling of contracts on a late Memorial Day Friday with little transparency has exacerbated advisors’ distrust. Moreover, since JPMorgan Chase has acquired all the assets, contracts, and liabilities of FRB advisors, some fear that selective poaching from JPM’s Private Bank could occur.

It is worth noting that JPMA, the division housing FRB advisors, had previously planned to expand their business exponentially to include 1,000 advisors. However, this promise remains unfulfilled, and even with the addition of FRB advisors, the combined total falls short. As a result, assets under management may rise from $200 billion to approximately $300 billion+/-. Looking ahead, FRB advisors may face significant challenges within JPMA over the coming years:

1. Client Retention and Acquisition: Positives and Challenges • The FRB brand name should completely fade away within 1 year.

• Clients may find less personalization and increased bureaucracy undesirable.

• Some clients might engage in power struggles with existing private bank relationships.

• Advisors will return to the “eat what you kill” model, as leads will cease to flow to FRB advisors.

 

2. Divisional Differences of JPM Private Bank vs JPMA

• What does the division and platform truly entail?

• The lingering lacking reputation of JPMA Securities, the Bear Stearns division.

• Regrettably labeled the “red-headed stepchild of the private bank.”

• The private bank’s salary bonus model attracts the majority of attention and resources.

 

3. Cultural Differences

• FRB is renowned as a boutique firm celebrated for exceptional client service— prepare for a culture shock.

• Advisors will face heightened compliance oversight due to regulations and the failed FRB bank.

• Know Your Customer (KYC) procedures notoriously long at JPMA under intensified scrutiny opening up accounts and/or conducting everyday business.

• Firm surveillance will loom over advisors.

 

4. Compensation & Contracts

• Expect no changes to bank referral payouts from 25% in January 2024.

• Expect future changes to compensation, such as GRIDS, non-solicitation clauses, deferred compensation, and lockup provisions further restricting advisors should they ever consider leaving the firm.

• Selling an advisor practice in the future should yield much lower valuations than today for many of the reasons above.

While maintaining optimism, most FRB advisors exercise utmost caution. Since they do not want to alarm advisors, short-term changes may be minimal, but gradual change is expected. Though leaving JPMA becomes increasingly challenging over time, with diminishing business valuations. The best opportunity for advisors to break free lies in the next few months to a year. Despite, for the last remaining First Republic advisors, we do wish them the absolute best, that things will be much different this time, and sincerely hope those who departed have missed out on a great opportunity.