Battered brokerages turn to 'wealth management'

Steve Rose, a New York public relations executive, spent a year weighing whether to keep his money at Morgan Stanley Smith Barney or switch to an independent investment adviser.

The firm was charging him an annual fee of 1 percent of his assets, and his account wasn't keeping up with the performance of the market. So last month, he decided to make a move.

"They have a managed portfolio to sell, and then it's sell it and forget it," said Rose, 56. "It's too late to get my business back."

Rose isn't alone in his view. Almost 30 percent of the world's millionaires withdrew assets or left their investment firms last year, and 46 percent lost confidence in their advisers, according to a survey released in June by Capgemini SA and Merrill Lynch & Co.

Assets at full-service brokerage firms, such as Bank of America Corp.'s Merrill Lynch, Morgan Stanley Smith Barney, and UBS AG are projected to decline by $189 billion this year, according to consultant Cerulli Associates in Boston.

Meanwhile, independent registered investment advisers are expected to gain about $50 billion in assets. They are typically regarded as "wealth-management" advisers who guide clients' overall portfolios.

So the full-service brokerages are renewing efforts to retain retail clients and expand their businesses catering to wealthy investors, according to Mercer Bullard, founder of Fund Democracy L.L.C., an advocacy group in Oxford, Miss.

"The retail side of the brokerage business needs to come up with something new and sexy, and that's why they're pushing wealth management now," said Charles Geisst, a finance professor at Manhattan College in Riverdale, N.Y.

They are targeting customers who have at least $500,000 in investable assets and also are branching into giving advice, including insurance and estate planning, Geisst said.

Merrill Lynch recruited 96 advisers last month and Morgan Stanley Smith Barney added 54, according to Discovery Database, a sales and marketing firm in Shrewsbury, N.J.

Bank of America is bringing in more advisers and expects asset flows to follow, Sallie Krawcheck, president of the wealth-management division, said at a news conference Oct. 5. The bank said last month it was reviving the Merrill Lynch bull logo in a $20 million marketing campaign focusing on its wealth-management business.

The business has "changed dramatically" from transactional - that is, just charging customers for each brokerage transaction, such as buying shares of a stock - to wealth management, Charles Johnston, president of Morgan Stanley Smith Barney, said in a recent interview.

Robert J. McCann, the former Merrill Lynch executive who joined UBS of Zurich in October as head of wealth management in the Americas, announced this month a new team to focus on retaining clients and stemming global net outflows of assets that totaled $25.8 billion in the third quarter.

Full-service brokerage firms are focusing on wealth management because it provides steady income, greater client retention, and the potential for higher returns through cross-selling of products, said Monish Kumar, a partner in the New York office of the Boston Consulting Group.

Rose, the public relations executive, said he picked his new adviser because he offered a more customized approach for managing retirement savings.

"Focusing on me became more important than size," Rose said.