How PWM really works (part 3): PB v. PWM, lifestyle, hours, day in the life

Sorry this took so long everyone! Hope you enjoy and hope it's not too terribly long.

For the 3rd installment of my blog, I'll detail some of the differences between PWM & PB as well as the lifestyle for an established broker.

For those of you just tuning in, take a look at the first 2 blog entries to get back up to speed:

Part 1: Past, Present, Future, and $$$
Part 2: Breaking In, Staying In, and Getting Out

WHAT DOES IT ALL MEAN?

Let's clarify PWM first

First, I think it's instructive to define exactly what I mean when I say PWM and PB. By PWM, I mean traditional brokerage at a broker dealer (member firm of NYSE), where you can operate as a sole proprietor, a team, an institutional team (like James Wallace of Merrill or Mark Curtis of Morgan), or part of said firm's private wealth division, where the payout structures are similar, can still be team/individual/institutional, but the minimums are higher and the marketing looks different. For how this looks, see my first post on PWM. To be clear, all of the big 3 have these divisions that they call "PWM" as well as just "wealth management," and they really are not that different. UBS & MS call it Private Wealth Management, Merrill calls it Private Banking & Investment Group.

At my firm, and I'm sure it's this way at the other 2, the compensation works exactly the same in PWM as it does in WM, with one exception: minimums. These firms PWM divisions are very small from a headcount standpoint, they might have a dozen offices across the country (in the cities you'd expect: NYC, LA, SF, Chicago, Boston, Houston, Atlanta, etc.), but their minimums are not small. Whereas in my business (I'm in my firms Wealth Management division, I just use PWM because it's the convention for this forum) we determine our own minimum for the most part, and my firm pays me on anything above $250k, the minimums of these PWM divisions are usually $10-30mm of investable assets, and the firms will not pay you on anything less than $1mm investable.

So, PWM is better than WM, right? Wrong. So, PWM guys make more money than WM guys? Wrong. So PWM guys have a better lifestyle than WM guys? Wrong. They're mostly the same thing, except for the minimums, and having different minimums has residual effects. There are guys in my part of the firm who make more than PWM guys and there are PWM guys who make money hand over fist compared to some people in my side, it's just a different beast. PWM guys will have much more assets than a team like mine, lower ROAs, less client relationships, and a different type of clientele.

OK, now PB…what is it?

Private Banking is a version of wealth management and you can think of them as like the differences between IB & PE, or something like that. I say that because many of the skill sets are transferrable, but the comp structure, clientele, responsibilities, etc., are all different. Major Private Banks include Wells Fargo Private Bank, JP Morgan Private Bank, Northern Trust, US Trust (BofA) and others. From what I've heard, Goldman's private wealth division is sort of a hybrid between PWM and PB, but leaning more towards PB. Same for Credit Suisse, but none of this is based upon experience, but secondhand info from friends/clients. Also, yes Northern Trust is a trust company, but the model is almost identical to most private banks. Private Banks can be part of a larger brokerage firm and they usually are (JPM, GS, CS), but trust companies which use a similar business model to PB are usually just affiliated with a broker-dealer firm but are independent for all intents and purposes.

The Clients

The #1 difference between PB & PWM is how the clients are viewed. In PWM, if we wanted to, my partners & I could walk downstairs to another wirehouse and over 80% of our clients and probably over 90% of top clients would come with us. They are loyal to US, not to our firm (for the most part). PB is much different, clients are sold on the bank, probably by one of the rainmakers (will be called a relationship manager and probably have similar pay as a top PWM guy), and if the banker recruited a lot of his relationships, his clientele is probably portable, but on the whole, PB relationships are stickier than PWM if a broker leaves. The client is viewed as a client of the bank, and in some situations the client's information is shared across other divisions of the bank so the RM (relationship manager) might get emails periodically from the bank's business brokers or mortgage brokers asking about his client, and while you can talk your way out of those to an extent, the bank makes higher margins on credit products, not on a muni bond account billed at 40bps, so eventually your client will get offered a product you didn't recommend. PWM is nothing like this. My branch manager can see my clients, so can my compliance and operations people, but none of them would dare contact a client before running it by me, that's a faux pas. I did a brief stint at the retail side of a major bank (BAC, WFC, C, one of those), and I can attest to this from my interactions with our private bankers. May not be this way everywhere, but I was a bit alarmed when I figured this out.

What the clients look like will be on the surface a lot like PWM, it just depends which model the client likes more. There's no rule that says once you cross over a certain liquid net worth you're better served by a private bank versus a PWM firm, it's all about preference. Something to be wary of however, if you end up as a financial advisor or retail banker, the bank will almost force you to give up clients past a certain asset level. At my bank (before I moved to PWM), I discovered a prospect worth mid 8 figures, I had the relationship, trust, etc. As soon as a private banker saw her net worth (remember, data is shared across the entire company), they swooped in and tried to steal it from me. I hope that gets you the gist of how the PB experience is different from PWM, but please ask clarifying questions.

The Employees

Another huge difference between PWM & PB is PB has pretty much one model: team of people helping individual assets. Sidebar: individual assets are anything where the client has direct and controlling interest in the money. Examples would be personal savings, family business, trust accounts, farmland, etc. Institutional is where the client (CIO, HR person, board of trustees) is a fiduciary but it's not his/their money. Most institutional accounts will have 1 of 2 models: either a CIO who's internal and simply hires & fires money managers, or hire an institutionally focused PWM guy who will then hire managers. As you might imagine, any large institutional account will have its own CIO, but smaller ones can't afford someone quality so they will do it a different way. Examples of institutional accounts are pensions, endowments, stock plans, corporate accounts, etc.; I mention this because there's a different sales cycle, emotions, etc., with institutional money. That's how I define them, and while others disagree, I think the definition works. As you might imagine, the clientele affects the employees and their roles.

Every PB operation is a team, and there are almost always the same usual suspects (at least one of each): relationship manager, tax guy, legal/trust guy, investment manager (PM), a banker, an insurance guy, and staff. But wait brofessor, don't you work on a team? How is this different? Settle down spaz, I'll explain. Yes, in PWM, there are teams that have specialists, but for the most part, everyone is a generalist at heart. This means that if all of the partners went on vacation, I could answer just about every question a client threw at them. On my team, we have a guy who's our go-to for legal issues, but the rest of us are perfectly comfortable answering 99% of all legal questions. In PB, while everyone will have the ability to have a conversation with a prospect/client, there will almost always be those segmented roles within a group.

THE LIFESTYLE

General lifestyle stuff

Our business is great and lends itself to a very laid back lifestyle if you want it to be. There are guys who get maybe 4-6 hours of sleep per night, but there are also guys who spend 75% of their time at their beach house and only come into the office to meet with clients & potential clients. Because good PWM practices can survive day to day with good partners & assistants, you don't have to miss much in the way of family stuff (baseball games, moving to college, ballet recitals, etc.) if you don't want to. Part of this is because PWM is very entrepreneurial, but most of it I think is most everything clients call about is not URGENT (as in needs to be resolved rightfuckingnow), and even if it is, there's a 99% chance one of your partners or assistants can solve the problem.

I love the lifestyle I have, I control my hours, I don't have to ask for days off (I simply make sure that there's at least one other partner in the office in case clients have questions), and best of all, I don't feel bad about doing whatever the hell I want. Of course, and people who make their own schedules will agree, this probably means I work more hours than if I had a set schedule. Oh well, I love what I do so it doesn't feel like work.

The hours

This is probably the most attractive part of PWM…on the surface. People hear tales of guys working 20 hours a week, playing golf 3x a week, and clearing 1mm per year, but it's not that simple. Yes, there are brokers who are in the office an absurdly low amount of time, but for the most part, these guys are coasting. They are making good money, probably have no kids to take care of, have great sales assistants, and have a loyal & compact clientele. So aside from meeting with people and making investment decisions (all of which can be done remotely or out of office), there's not a huge need for face time in the office. Coasting means they are probably not doing much new business development, so if the markets are up, they're up or flat (people die, people spend money, clients leave, etc., most books can expect 2-5% attrition annually, depending on your clientele), but if markets are down, they will be crushed. This is certainly common in the business, but elite advisors are not like this.

Keep in mind this is for an ESTABLISHED broker, someone probably 40-60 years old who has at least a million dollar practice (or whatever your "number" is), not someone who's focused on growing (regardless of age). Of the people I see growing their practice, they're working 40-50 hours a week in the office, and if you include extracurricular activities that will generate residual business (golf, NP boards, church finance committee, stuff like that), the number is probably higher. Elite brokers are very visible in the community and do a lot of schmoozing. However, while it may generate business, the best brokers out there are involved in things they'd be involved in even if it didn't help business. For example, a guy in my area sings choir at his church, has gotten some accounts from it, but he wasn't passing out business cards during hymnal, if you follow that.

For a brand new broker, you should expect 70 hours a week minimum. This includes time in office, offsite meetings, outside training/involvement, business reading, etc. As I've said before, the name of the game in PWM is sales. If you're not selling, you're not working.

Day in the Life

So here's a specific example of a day in the life of an established broker (makes over 1mm per year) who still wants to grow, but keep in mind this will vary day to day. If you want more detail on any of the below, let me know.

8-830am: arrive in office, check email, morning market updates, WSJ

830-9am: review numbers, like revenue hitting the books overnight, deposits & withdrawals, morning meeting w/team to discuss issues at hand

9am-1030am: meeting with new client

1030-1130am: con call w/attorney, banker, and clients in the middle of a business dispute

1130a-1pm: lunch w/current client & friend he wants to introduce us to

1-130pm: con call w/client in hospital, getting update

130-2pm: call w/CPA regarding client whose company got taken public, discussing taxes as they relate to selling stock, putting collar around it, doing exchange fund, whatever is most efficient

2-3pm: internal investment committee meeting

3-6pm: return incoming calls from day, follow up on potential new clients, plan next day, go home

Most Fridays for established brokers will be a 4-6 hour day, and will probably just be client calls, maybe an internal meeting, really light stuff. In addition to the above, teams like ours that manage our own money will probably have 4-10 hours a week for business reading (stock reports, manager updates, economic news, stuff like that).

My days are bit more hectic than this since I'm not yet a 20 year vet, but this is what I hope to get to by the time I'm 35.

What about rookies?

I hesitate to do a day in the life of a rookie broker; I don't want to put what I did as a rookie up here because there are tons of ways to build a business and my way isn't the only way. I also don't want someone to copy exactly what I did, fail, and then blame me for their failure. Most of the success of people in PWM is hard work, yes, but it's also a function of intellect, sales skills, secular market cycle, and possibly an X factor (people tend to like you and are drawn to you), not everyone has this. Hell, I'm not perfect, but I think I have a teeny bit of each of those (PWM also requires a bit of cockiness). The key takeaway is when you come into PWM with 0 clients aside from yourself and maybe parents/spouse, you need to get new clients faster than you can possibly imagine. It is as if you are building a brand new business with no customers, you have to market, and to get your potential customers aware of you quickly, you have to contact them en masse. To contact in masse, you have to work long hours. Uncle Eddie did a post about cold calling and what a day in his life was like, PWM has changed a lot since then, but a rookie who cold calls (like I did and still do to this day) can expect to be on the phone for at least 4-5 hours a day. Same goes if you're one of the rookies that does seminars, you have to call people to invite them, no? Same deal, lots of time on the phone. Additional work that comes with this is sending mailers, proposals, making follow up calls, and so on.

In addition to prospecting for several hours per day, rookies have other responsibilities too. You have to constantly replenish your potential client list. This will entail researching your target market (the people you want to do business with), gathering leads, managing your leads database, etc., expect this to take a couple of hours a day. Also most rookies should expect a few hours per week to work on sales skills. It's not necessary to do something like toastmasters (although it helps), but just things like reviewing what worked the prior week/month, what tweaks you make to your pitch, etc. The best brokers always seek to improve, and this starts day 1 for most. Finally, most rookies know nothing about the investment world or their firm's products, so the balance of your day will be spent learning about investments, either via studying for an exam (CFP, CFA, CIMA, etc.), doing research on your firm's internal platform (likely on their managed money products), or something similar.

So there you have it, PB & PWM and the lifestyle of a broker. Fire away with questions!

Final post will be a compilation of misconceptions about my business unless I get some specific requests for another topic.

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