All-In-One Mega Firms

You’ve probably seen the latest news that First Republic Bank will be acquired by J.P. Morgan after rescue efforts failed over the weekend. What went wrong with this all-in-one mega firm?

The failure of First Republic Bank marks another significant event in the banking industry. At its peak, the bank was a trusted and reliable institution that catered to the financial needs of many individuals and businesses. However, the collapse of First Republic Bank has once again sent shockwaves throughout the financial world, leaving many questions unanswered. The bank’s failure also impacts all its customers, including those clients of its financial advisory business.

As it relates to First Republic, it’s believed close to 20% of their gross revenues were generated by their wealth management division across several hundred financial advisors. It’s also believed many clients of this part of the business also utilized other services such as a personal line of credit, a business loan, a home loan, etc.

Is all-in-one best?

While many conflicts of interest can exist, selling the convenience factor of doing everything in one place tends to work, until it doesn’t. This cross-selling approach was popular until the banking crisis began a couple of months earlier in March. Then it became impossible to provide financial planning or investment advice to any clients under First Republic. Hence, you began to see advisors depart First Republic in mass.

For reference, at CAM, we believe in the independent fee-only approach. As a fiduciary to our clients, we look to avoid and/or reduce conflicts of interest at all costs for clients. Our firm doesn’t try to serve everyone. Instead we focus on what we do best to add the most value for our clients’ needs. We’re supported by a team of independent external experts to best serve our audience.

With more options than ever when it comes to banking and investing, many financial institutions have attempted to expand their potential customer base by trying to please everyone. But as most of us know, when you try to be good at everything, you might end up not being particularly great at anything. As it relates to financial advisory and wealth management, that can also pose additional risks. This is just one reminder on why consumers should make sure they do their research before leveraging the services offered by any financial institution.

What to consider

Below are some additional reminders you might find helpful as you look to partner with your next bank or advisory firm.

• Lack of Focus
  A financial institution that claims to be good at everything may spread its resources too thin. Which could result in failing to excel in any one area. Having a lack of focus can be detrimental to any financial institution. With limited resources, quality advice, services, and customer experience may suffer. Without a clear focus on specific areas of value, potential customers will likely look elsewhere for their needs.
  
  
• Overconfidence
  A financial institution that is too confident in its abilities may take on too much risk or engage in risky activities. Overconfidence tricks the brain into believing it’s possible to consistently beat the market by making risky bets. This behavior can lead to significant losses.
  
  
• Regulatory pressure
  Regulators may scrutinize institutions that claim to be good at everything. Extra scrutiny can lead to increased regulatory costs and reputational damage. Financial institutions are complex entities that must be managed carefully in order to maximize their chances of success.
  
  
• Higher fees
  Financial institutions that claim to be good at everything may charge higher fees. While it may appear bundling will save a customer money, they may end up paying more by purchasing unnecessary products. Higher fees can also be a burden for customers with limited financial resources.
  
  
• Customer dissatisfaction
  Customers may be dissatisfied if a financial institution that claims to be good at everything fails to meet their expectations in a particular area. Or they may feel that the institution is not sufficiently focused on their specific needs. Financial institutions that try to be good at everything may end up achieving the opposite goal – unhappy clients.

Do your due-diligence

Managing your finances, protecting your wealth (i.e. insurances) and ensuring you are prepared for whatever your future may hold (having a plan) is a lot for any one person. Hiring a professional, such as a wealth advisor, can be helpful. They have the experience, knowledge and time to manage these areas of your life on your behalf. However, that doesn’t mean you can always go with the first advisor you speak with.

Doing your own due diligence to ensure the advisor and their firm are the right fight is critical, especially with these all-in-one mega firms. Ask another advisor for a 2^nd opinion, see how their services and planning differ. Don’t know what to ask when YOU interview the advisor? We wrote a blog earlier and outlined the questions to ask before working with a financial advisor.

Disclosure

M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. As a fee-only firm, we do not receive commissions nor sell any insurance products. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. 

This blog has been provided solely for informational purposes and does not represent investment advice. Nor does it provide an opinion regarding fairness of any transaction. It does not constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy.

Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss. Tax planning and investment illustrations are provided for educational purposes and should not be considered tax advice or recommendations. Investors should seek additional advice from their financial advisor or tax professional.