First Republic Sings a Song of Seasoned Brokers
First Republic Bank’s wealth management division contributed 14% of the company’s total revenue last quarter, double the 7% it represented five years ago when First Republic stepped up its effort to manage assets for the wealthy.
Revenue at the San Francisco-based bank’s private wealth management rose 22% in 2016 to a record $356 million, up 22% from the previous year, the company reported on Tuesday. Assets under management in the wealth unit rose 28% to $107 billion from $84 billion at the end of 2016, the company said.
At a time when large U.S. broker-dealers have cut their recruiting efforts, First Republic has been aggressively wooing brokers from large firms such as Merrill Lynch, UBS Financial Services and Morgan Stanley to establish a firm base. Recruiters have said that First Republic is dangling signing bonuses as high as 300% of a broker or team’s trailing-12 month revenue if they produce $2 million or more of fees and commissions.
“We continue to be very successful in growing wealth management assets by winning a greater share of our existing clients’ assets, generating new business from word-of-mouth referrals and recruiting new advisors,” said Robert L. Thornton, president of private wealth management, on the company’s earnings call on Tuesday. Last year was a “very good” one, he said.
The bank’s private wealth unit of about 150 advisors in more than 70 U.S. locations was spun off along with the parent bank from Merrill Lynch in 2010. It recruited seven new teams of experienced advisers in 2016 and again in 2017, and has “successfully integrated” most of them, Thornton said in touting the recruits’ abilities to bring client assets with them. It usually takes about two quarters for brokers to move most of their client assets, Thornton has said in earlier calls.
First Republic is a member of the Protocol for Broker Recruiting, which permits brokers moving among the pact’s more than 1,500 signatories to bring rudimentary client contact information with them to jump-start their practices at new employers. Since late November, Morgan Stanley Wealth Management and UBS Financial Services have left the Protocol, positioning them to sue employees who jump to rivals with arguments that using confidential firm information to contact former clients violates employment contracts.
First Republic Chief Financial Officer Michael J. Roffler said the bank has not at this point suffered as a result of the Protocol exits.
“I don’t think we’ve really seen a change in the sort of the way we are negotiating or the packages that come through when we hire advisors,” he said in response to an analyst’s question.
Meanwhile, the bank has begun 2018 by recruiting a Merrill Lynch team with $11 million in annual production. Merrill remains in the Protocol but continues to weigh its options, Brian Moynihan, chief executive of its parent Bank of America, said on Wednesday.
First Republic’s engagement with wealth management is driven by its efforts to woo wealthy investment clients to its banking products and services, a strategy that Wells Fargo Corp., Bank of America and Morgan Stanley also are aggressively pursuing with incentives to get brokers make referrals to bankers.
In the five years since First Republic laid a stake in the wealth management turf by writing a big check to buy Luminous Capital, a registered investment advisor founded by former Merrill Lynch brokers, households with relationships at both the investment and banking arms of the company have more than doubled, Thornton said on the earnings call.
First Republic President Hafize Gaye Erkan said wealth management clients not only fuel demand for personal banking services but are “an increasingly important source of deposits.” Cash swept from brokerage accounts to the bank represented 6% of the bank’s $68.9 billion of total deposits as of year-end, the company said.