Ex-Merrill broker boss slams bank on client focus

NEW YORK Wed Feb 15, 2012 3:03pm EST

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NEW YORK (Reuters) - Lyle LaMothe, who last year retired as head of brokerage giant Merrill Lynch, is warning his former employer and other banks that obsessing over corporate goals at the expense of brokers and investors will ultimately damage their business.

When LaMothe abruptly left one of the highest-profile jobs on Wall Street last May, he cited personal reasons. But in his first interview since then, LaMothe, 50, said he had "philosophical" differences with the way Bank of America Corp approached wealth management, emphasizing the goals of the bank rather than specific needs of Merrill's brokers and clients.

"I know some people can thrive in that format, but I'm not one of them," said LaMothe, who joined Merrill in San Bernardino, California, as an adviser in 1987 and became head of Merrill's 16,000-strong brokerage force in 2008. "I didn't get into the financial services business to be a commercial banker."

LaMothe has re-emerged as an industry consultant, launching his own firm in December. He plans to identify and help companies that share his philosophy for quality over scale.

The wealth management industry is increasingly dominated by big global banks that want their armies of brokers to sell banking and loan products in addition to managing investments. While profitable for the institutions, the strategy does not always sit well with advisers.

LaMothe says brokers who are selling the entire bank - rather than being totally focused on wealth management - will not provide the best possible planning and investment advice.

The largest firms still enjoy great advantages, including scale, brand name recognition and a wide array of capabilities. But that lead could be squandered, he said.

"The strength still resides with the wirehouses," he said, referring to the four largest U.S. brokerages: Merrill, Morgan Stanley, UBS and Wells Fargo.

"But unless these organizations find a way to deliver all these services seamlessly, and if talent continues to leave, they will lose their advantage."

His firm, Left Hand Logic LLC, is a Bedford Hills, New York, consulting firm that will advise money managers, brokerages, technology vendors and other companies involved in the wealth management business.

LaMothe said the firm's name derives from his habit of challenging Merrill's brokers and managers to apply different, "left hand logic" when tackling challenges. The new firm also will serve as a holding company for investments in wealth management enterprises that share his views.

LESSONS FROM MERRILL

LaMothe had his share of challenges since January 2008 when he was tapped to lead Merrill. Nine months later, Bank of America bought a hobbled Merrill, setting the stage for one of the biggest merger integrations ever on Wall Street.

LaMothe assumed the unenviable task of corralling Merrill's fiercely independent brokers and melding them into the North Carolina commercial bank. It was also a career-defining job, leading an iconic business that oversees $1.5 trillion in assets and last year generated $13.5 billion in revenue.

A year and a half later, he quit. For the soft-spoken LaMothe, it was the loudest splash he made during his 25 years at Merrill. Amid a chorus of brokers bemoaning the bank's goals, his departure sparked new questions about the integration.

While Merrill Lynch and LaMothe said that brokers are not forced to pitch loans and banking products, a number of Merrill advisers complain of feeling such pressure at a company that emphasizes cross-selling, one reason many former brokers have said they left Merrill over the past two years.

LaMothe says combining bank and brokerage under one roof "makes perfect sense," but there are limits. "You cannot pressure good advisers to sell a product: they simply won't do it. It's almost counter-productive."

From his viewpoint, by emphasizing such a wide range of services, BofA only distracted Merrill executives from what he believes should be the top priorities for a brokerage - raising the quality of advisers, developing new investment tools and improving service delivery.

Managers, he said, may spend time drilling brokers on BofA's credit underwriting standards rather than engaging in advanced training designed to improve the quality of advice.

"I'm not saying they tried to do anything untoward, but there are a lot of pots on the stove at that organization, and I was concentrated on just one," he said.

Merrill Lynch declined to comment for this story.

LaMothe said the flood of investors leaving left Wall Street banks for independent brokers and advisory firms shows that big banks and brokerages need to do a better job of understanding and meeting client needs.

Over the past decade, LaMothe said, smaller firms gained ground on big banks through better technology, investor tools and access to fund managers and research.

Independent brokers and RIAs oversaw 35 percent of total U.S. client assets in 2010, up from 29 percent in 2007, according to the most recent Cerulli Associates study in August. Independents will boost that share to 40 percent by 2013, Cerulli estimates, while that of the "wirehouses" - Merrill, Morgan Stanley, UBS and Wells Fargo - shrinks to 35 percent.

Independent and boutique firms also have lured brokers from Merrill and its competitors. Three teams joined HighTower Advisors last year, while earlier this month a Connecticut team with $2 billion in assets joined Focus Financial Partners.

Competing banks, particularly UBS, have also poached Merrill brokers. In January alone, Merrill advisers managing more than $4 billion left - a sum that only includes advisers generating more than $1 million a year in revenue. (For more on January broker movement click on [ID:nL2E8D17OQ])

(Reporting By Joseph A. Giannone; Editing by Jennifer Merritt and Matthew Lewis)

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Comments (2)
pbug wrote:
Many years ago my father told me he’d never trust ‘financial advisers’ at brokerage firms because their mandate was to 1. churn your account for commissions, and 2. sell you all the junk that they couldn’t sell to commercial customers. When a place has a mandate to pressure customers to buy specific products regardless of whether they are any good or of any use to the customer, such a firm rightly loses the trust of its customers.

I have found that there are some firms out there which don’t do that. They may earn fees that are based on the size of the portfolio, and if that grows, so do their fees. They actually tend to listen to customers and they pay close attention to maximizing the portfolio while limiting risk. These firms can earn some pretty decent fees for service rendered, and its easy for their customers to recommend the firm to new customers. So I think Lyle has the right idea. Though I’d have to say that ML has not always followed that philosophy.

Feb 16, 2012 6:43pm EST  --  Report as abuse
Cengiz wrote:
Some one, please tell this LaMothe, that it was the commercial bank, which came to their rescue ! Can LaMothe say where he does his banking ?

Feb 16, 2012 7:11pm EST  --  Report as abuse
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