Do The Big Firms Really Care About You?

In 2019 James Gorman, the CEO of Morgan Stanley, made $29 million^[1].  Brian Moynihan, CEO of Bank of America/Merrill Lynch made $26.5 million^[2].  Are those compensation packages justified?  Who pays for these exorbitant salaries along with the excessive compensations of other senior executives?  As you may have guessed, the clients at these firms pay for these million dollar salaries!

With many senior executives making so much money they would surely be grateful to the clients that allow them to own their many vacation homes.  It would make them really want to serve the clients at their firms and go above and beyond for them, right?  Unfortunately, reality paints a much different picture.  During the coronavirus market panic Morgan Stanley couldn’t even keep its systems up and running^[3].  Additionally, in 2017 they were fined $13 million for allowing advisors to make unnecessary trades in client accounts to increase commissions^[4]. Merrill Lynch was fined $8 million for overcharging clients on mutual funds^[5].  UBS had to pay a $3.5 million fine as well to settle charges with the U.S. Securities and Exchange Commission for overcharging clients on mutual fund trades^[6].  With so many other fines for wrongdoing like this that could be listed, it leads one to wonder what benefit investors really have by keeping their hard-earned dollars at these large firms.

Having spent the first 13 years of my career at one of these large firms I can tell you a few things about how they operate.  First, they are all publicly traded companies and publicly traded companies exist to do one thing – maximize profits for shareholders.  Our joke among the financial advisors and staff at my office during the time I worked there was that our firm motto was, “Sticking our hand into advisor and client pockets as much as we can legally get away with.”  Given the numerous fines these firms have had to pay I guess we were being generous when we used the word legally.

I also recall a time when we were constantly pressured to get our clients to do mortgages with our firm because of the profits associated with that.  Another employee I knew was buying a new house and did their mortgage through the firm.  At the end of the process the real estate agent told them that it was the worst experience he had ever had with a mortgage lender.  And to top it all off after the mortgage was processed the firm missed one of the property tax payments causing a whole other headache for my colleague to deal with.

Although it can be argued that the wirehouse firms have certainly committed many missteps in taking care of their clients, most financial advisors genuinely care about their clients and do want the best for them.  As a result, advisors have been leaving the large firms in droves to be able to be true fiduciaries for clients and free of the corporate mandates and shackles^[7].  Thankfully, this result is expected to continue.  This will force the large firms to either make major changes to better align with their clients or become obsolete.  Either way that is good news for investors.

Robert David

Portfolio Manager & Financial Advisor

Bluewater Investment Strategies, a member of Advisory Services Network, LLC