First Republic advisors breathed a sigh of relief when
But the advisors face a multitude of risks under their new owner JPMorgan Chase, even as CEO
Even as Dimon offers encouragement for the new advisors to stay on and not go work for a competitor, many remain on the fence about remaining, according to industry consultants and recruiters familiar with those advisors. Some advisors have already departed for other firms in recent weeks, hopping to wirehouses
While every advisor weighs switching employers at some point in their working lives, the case of First Republic is unique in its concentration of high-caliber advisors and in how much is at stake for their careers.
Before it imploded and was taken over by JPMorgan Chase last month, San Francisco-based First Republic was widely regarded as an elite wealth shop, with scores of ultrahigh net worth advisors poached away in earlier years from wirehouses. That makes the First Republic 'to move or not to move?' quandary instructive for wealth advisors writ large on the many factors that can play into deciding whether to join a competitor.
Several industry experts spoke with Financial Planning about the pros and cons of being a First Republic advisor who stays at J.P. Morgan Advisors. They said that while remaining with the Wall Street giant has its advantages, mainly convenience and stability, it may also carry hidden costs for their careers. What's more, the clock is ticking loudly in their case.
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"Timing is of the essence to make a decision," said Roger Gershman, an industry recruiter who said he has personally been in touch with just about every First Republic wealth advisor in recent weeks.
Gershman, the CEO of The Gershman Group, advised the moves of several First Republic advisors out of First Republic this spring. He said the advisors are considered "free agents" now and highly desirable to competitors, but that that could change as JPMorgan carries out its integration plans and potentially makes it harder for the advisors to leave as easily.
Many at First Republic have already decided to play their hand and exit. The ranks of "wealth managers" and "wealth advisors"
Reached with questions on this story, JPMorgan Chase declined to comment. A bank spokesperson confirmed the May 1 advisor count.
Broker Protocol risks
Key among the potential issues that a former First Republic advisor who's now part of the JPM empire needs to consider is the possibility of JPMorgan removing them from their current protection under the industry
Technically, at the moment,
But that could change at any moment, according to industry lawyer Sharron Ash, the
"First Republic is a firm with a qualified joinder," Ash said, adding that the term means that not every advisor at the firm might fall under its protection. "So you can't say blanket across the board, everyone gets to use it."
"That's something that I would say these advisors need to be aware of: where do they fall? They should not be making assumptions," Ash added, explaining that just because an advisor's friend or colleague easily left under the protection doesn't mean they personally will qualify for the same.
"That's the worst possible way that an advisor can plan a transition, because what your colleague did doesn't necessarily apply to you."
Jodie Papike, the president of recruiting firm Cross-Search in Encinitas, California, said in an interview that advisors should also examine their individual employment contracts to be sure of what they risk on their way out. Some advisors might decide it's better to stay at First Republic for reasons based on their own situation and contract.
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"We don't know what every individual team or individual advisor, what their contracts look like. And that really would determine what kind of non-compete they potentially have," Papike said.
"Not just whether they're part of broker protocol or not, but it always goes back to their individual contract."
In addition, Ash said, the members of the protocol are allowed to change their protection status with only 10 days' notice — and are not obligated to tell their own advisors when they do so, even as they inform other protocol members of the change. In the case of
While that could happen to any advisor at any firm, the risk for First Republic advisors of getting it wrong is greater in the case of leaving JPMorgan, Gershman said. Why? Because "JPMorgan is historically
The price of waiting
Compounding things, Gershman said that as time goes on, it could get harder for former First Republic advisors to leave JPMorgan in the same way that many peers have recently departed. In those moves, advisors were able to port out all their client books without opposition "in a matter of weeks," because their former colleagues were distracted with considering their own moves and JPMorgan did not have time to move in on client retention immediately after buying the business.
"JPMorgan has hardly even integrated, begun to integrate the acquisition, so therefore. It's very hard for anybody to go after them," he said.
The Wall Street bank will likely soon introduce new contracts for retention, Gershman said, and these may include all sorts of golden handcuffs. That could mean more compensation becoming deferred, "garden leaves" when they exit, or clauses prohibiting the solicitation of former clients.
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"Certainly, provisions that just make it very difficult for them to say, 'oh, after five or seven years of being at JP Morgan, so I'm going to now take what is what I thought was my business to another firm'" are likely, Gershman said.
"JPMorgan has the power and likely will exercise the power to make that contract very stringent. Essentially, they bought the firm and they bought the clients."
Right now, though, advisors who leave have been paid industry premiums by their new employers that are much higher than normal, Gershman said — just about all in the range of 400% or more of trailing 12-month revenue.
"(It) has always traditionally been between 300 and 340, before this happened, so that's a good percentage higher," he said.
Gershman knows because he negotiated those deals himself in many cases. "There's a lot to negotiate. When we're talking about packages of minimally $10, $20, $50, $70 million packages, those are not small packages."
But the longer an advisor waits to leave, the more they risk not being able to command such deals, he said, because employers will think it's harder to port over all the clients then.
Phil Waxelbaum, another industry recruiter who is the founder and CEO of Masada Consulting, agreed that advisors leaving now would encounter the least friction. "Now they don't have anybody competing against them," he said, adding that Morgan Stanley and
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Culture clashes in the House of Morgan
On another front,
In particular, Gershman said, the private bank at JPMorgan Chase is reputed to be a source of harsh competition for attention and resources, and even the center of a lawsuit from a JPM advisor claiming her clients had been poached. Private bankers are paid a salary and bonus, he said, and often come much cheaper than brokers on the JPM side, even as they do many of the same things.
"There's really a tug of war between securities and the private bank," Gershman said, citing the large attrition of former Bear Stearns advisors since 2008.
"They've left the firm, because of how they're treated as, is quoted, the redheaded stepchild of the private bank."
Jennifer Piepszak, the co-CEO of Consumer & Community Banking at JPMorgan Chase which includes J.P. Morgan Wealth Management, said in the company's investor day on May 22 that the firm was looking forward to learning from First Republic, rather than just imposing its own culture upon the staff there — joking that the Wall Street bank still served First Republic's iconic cookies as refreshments during a break at the event.
With the roughly "200 advisors and $200 billion in assets" that are coming on as well as many branches in desirable wealth markets that the firm intends to keep open, Piepszak said, "We have long admired First Republic's culture of client service, and their model is complementary to ours. So we look forward to incorporating the best of First Republic into our franchise."
