In the second quarter of this year, the wealth management division of Boston Private had net flows of negative $77 million, despite record levels of new business flows at $449 million in assets under management. 

The main reason for the negative net flows, according to Boston Private CEO Clay Deutsch, is due to the departure of a senior wealth advisor. 

Banks in recent years have doubled down on their wealth management segments not only to diversify revenue streams, but also because the business can yield attractive returns. 

While it sounds great on paper, the caveat is that to succeed in this business sector, banks must do a great job of hiring and retaining talent in an industry that is rife with turnover. Wealth management is relationship-driven, so when a portfolio manager leaves, they may take a good chunk of business with them. 

“Good financial advisors are always in high demand and I think now more than ever,” said Shawn Smith, principal of Ipswich-based Financial Advisor Placement Services, which exclusively recruits financial advisors for companies nationwide. “We place many each year and are getting lots of phone calls from every type of business.” 

Advisors at community banks and credit unions tend to last two or three years before seeking greener pastures and higher commissions, he said. 

Bram Berkowitz

The History of Boston Private 

The wealth business at Boston Private is a key part of what makes the company unique and certainly shows promise, having seen positive net flows in the four quarters prior to the second quarter of this year. But it’s been a challenge to get to this point, and the bank has realized the difficulty that can result from high turnover. 

Boston Private chose to beef up its wealth business in late 2014 when it purchased Florida-based Banyan Partners for $60 million. But as its subsidiary, Boston Private Wealth, moved to integrate its new purchase, things did not go according to plan. 

Due to a range of cultural differences and difficulties with executives at the subsidiary, many portfolio managers left the bank, and their impact was clearly visible. 

In the second quarter of 2015, Boston Private Wealth experienced net outflows of $243 million, according to a transcript of that quarter’s earnings call. While not all was attributed to Banyan advisors leaving, Deutsch on that earnings call said five portfolio managers had left since the Banyan acquisition in 2014, impacting over 10 percent of the base business. 

When asked on an earnings call three months later about the assets under management that had left as a result of departing portfolio managers, Deutsch estimated about a quarter to a third of the overall wealth book had left. 

Boston Private’s wealth division went from over $9.3 billion in assets under management in the first quarter of 2015 to roughly $7.1 billion in the first quarter of 2016. At the end of the second quarter of this year, the wealth division had recovered somewhat, with roughly $7.8 billion assets under management. 

“I get the strategy of trying to remix towards these ROE (return on equity) friendly businesses,” Casey Haire, an equities analyst at Jefferies & Co., said on the third quarter earnings call in 2015. “I am just wondering how the outflows have been, I think this is six quarters in a row [with negative outflows]. How long can you sustain this strategy in trying to stabilize the flows before you consider other alternatives, given that the private bank has got the wind at its back?” 

Balance is Difficult 

While Boston Private has had its own unique difficulties, all banks struggle to hire and retain good advisors. 

Wealth divisions at banks typically pay commissions in the 20 percent to 30 percent range, said Smith, whereas independent brokers or registered investment advisors can offer much higher. When an advisor is considering switching jobs, how much of their current portfolio they can bring with them is always part of the discussion, he said. 

Banks are not powerless – most will make advisors sign a non-solicitation agreement or even a noncompete. Smith said non-solicitations are much more common and generally prevent an advisor from taking any of their current clients to another bank, whereas a noncompete might prevent an advisor from setting up a firm within a 10-mile radius of any branches. 

But nothing is foolproof. 

“The way of getting around a non-solicitation is to go into a local newspaper and take out an ad that says you moved to a new location and if clients call you, that is not solicitation. Or they use social media and say they set up a new firm and clients can find you that way, so you are not breaking an agreement,” said Smith. “Noncompetes are more airtight.” 

But noncompetes also make it more difficult to hire, as many advisors see it as too prohibitive. 

Smith said banks do have the advantage of offering incentives such as base salaries, bonuses, good benefits and office space, but the reality of the wealth business can be very volatile. 

Even after all that Boston Private Wealth has been through and the positive direction it appears to be heading in, while commenting on turnover on the company’s most recent earnings call, Deutsch said he thinks this “business will always have the odd one off or odd attrition.”