Clients bolting First Republic test wealth advisors' staying power

It was 10:51 pm on a Saturday earlier this month when Erin Hadary, a wealth advisor in Denver, received an email from a worried client with $2 million worth of assets at First Republic Bank. 

Headlines about bank runs were flying after the collapse of two banks, and jittery depositors were pulling billions of dollars out of San Francisco-based First Republic. The client told Hadary that she no longer wanted her money, which she inherited, parked at the boutique wealth firm. 

"I already had her entire wealth management picture in place," Hadary, a partner at St. Louis-based registered investment advisor Moneta, said in an interview. 

And with that, the client began transferring $2 million out of First Republic into Hadary's practice, adding to the assets she already had with the advisor. 

That money bolt reveals what financial advisors at one of the industry's most elite wealth management shops now risk, as spooked clients consider whether to leave or stay put. 

Many First Republic advisors are top ultrahigh net worth producers poached from wirehouses and big broker-dealer competitors, and they have reasons aplenty to stay — whether it be loyalty to a well-respected franchise or practical considerations like not losing deferred compensation. But clients are putting the pressure on advisors to leave by voting with their feet. Meanwhile, headhunters, spying a chink in First Republic's armor, are pouncing on a rare opportunity to pry away the bank's top-performing wealth managers. 

The bank has around 220 to 260 advisors, an industry recruiter with knowledge of the matter told Financial Planning. As of the end of 2022, it reported $271.2 billion of assets under management in its wealth management business.  

While it's unknown whether all of the bank's advisors will stick around, several advisors could in the coming months wind up at competitor broker-dealers of similar prestige and scale, at big firms in the supported independence sphere, or at larger RIAs — all places that, barely one month ago, would not have expected as much traction in knocking on those advisors' doors. 

'A sense of urgency' 
First Republic's troubles began after West Coast peer Silicon Valley Bank, whose base of startup and tech company depositors overwhelmingly held deposits in excess of the FDIC insured limit of $250,000 per account, was shut down by regulators on March 10 after succumbing to a sudden run on deposits. Investors identified First Republic as another institution with deposit security risks and high tech exposure, with 68% of deposits uninsured — not as high as the nearly 96% at SVB, but still enough to trigger a similar crash in stock price and bank run. 

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A $30 billion lifeline from 11 major U.S. banks, including rivals JPMorgan Chase, Bank of America, Citi, Morgan Stanley and Wells Fargo, wasn't enough to stave off a further collapse in First Republic's stock. Although the stock began a recovery Monday, the company traded at $14.26 at market close Wednesday, 92% below its year-ago level of $169.34.

"Time is of the essence for the First Republic situation," Jodie Papike, the president of recruiting firm Cross-Search in Encinitas, California, said in an interview — meaning that advisors need a good story to tell clients now about why they should stay with them. 

"Clients are scrambling and trying to understand how safe their assets are …  Advisors need to provide that sense of security or they could potentially lose clients." 

Hadary agreed. "When things are rooted in fear, sometimes people just have to make changes to address the fear," she said. "Whether they're running from something, or running to something, that act of change itself makes them feel in control." 

First Republic, reached with questions, declined to comment. However, on social media the bank has been active in recent weeks posting and retweeting client testimonials promising continued business with First Republic, and thanking them for their commitment. 

"We extend our sincerest thanks to our clients for their advocacy on the value of our relationship-based, exceptional service," the bank said in one tweet among many of that nature. 

Papike said bank advisors sometimes have client relationships that are less "sticky" because some of those relationships come from people who are already customers in other parts of the bank. That creates more vulnerabilities, as clients who leave the bank will also leave their advisor. 

Some First Republic advisors, perhaps deciding enough is enough, are already decamping. This month, industry heavyweights Rockefeller Global Family Office and Morgan Stanley scooped up, respectively, a First Republic team managing over $1 billion and a First Republic advisor who managed $1.5 billion. The advisor going to Morgan Stanley, Vishal Bakshi, had approached the firm unsolicited for the move, a person familiar with the matter told FP. 

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Advisors seeking to keep their client books and provide reassurance have two options, Papike said: Either consider options to move, or tell their clients that their firm is getting bought soon, a message that can restore sense of stability and prevent clients and advisors from looking at the exit signs. 

"They need that as soon as possible. Because it's different than a situation where a firm just gets taken over or they sell," Papike said. 

The problem in First Republic's case is that no buyer has yet stepped forward, although reportedly the bank was considering a sale. On Tuesday, Fox Business reporter Charles Gasparino said in a tweet that he had heard unnamed bankers say the bank was no longer considering a sale. The bank did not immediately respond to a request for comment on the tweet. 

JPMorgan Chase, one of Wall Street's first supporters of First Republic, joined the Federal Reserve in offering increased borrowing capacity to the firm on March 12 that boosted its unused liquidity to over $70 billion. Reached for comment on whether it was in talks to buy First Republic, JP Morgan declined to comment. 

Papike said she expected big broker dealers to benefit if the struggling bank's advisors jump ship. That's because those advisors would expect a hefty compensation offer when they leave, as First Republic is known for paying top dollar — as much as 400% of trailing 12-month revenue, a recruiter told AdvisorHub. 

"They already have that in their mind that that's their value and their worth if they are to make a move. So I think first and foremost, it's going to be the transition packages that are offered," Papike said. 

A departing advisor would also need support transferring their book of business out of a bank, an onerous task, and a new employer that offers a sense of security for clients. 

"If someone's going to stay within the bank channel, they want to stay with a firm that has a lot of stability and a lot of name recognition." Papike said. 

But she added that First Republic advisors might also turn the other way and decide they don't want the problems of affiliating with a bank anymore: "Advisors will start looking at other opportunities, sometimes even going independent where they feel like they can control their own destiny more." 

Firms offering supported independence, which blends independence with bespoke resources, could also stand to win from an exodus of the bank's advisor talent. "The supported independent model really gives a lot of advisors the best of both worlds." Papike said. 

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Staying put, staying stuck 
One thing working in First Republic's favor here is the support it has received from big competitors who are propping it up financially in concert with federal regulators and swearing off poaching clients and employees. 

Institutions considered among First Republic's biggest competitors, including Bank of America, JPMorgan Chase, Wells Fargo and Citi, have reportedly told employees not to swipe clients or business from struggling banks including First Republic, Reuters reported, citing internal staff memos at those firms. However, AdvisorHub cited several unnamed recruiters who said UBS and Morgan Stanley had been ramping up courtship of First Republic advisors. 

"I still expect overwhelmingly advisors are going to stay at First Republic. Certainly it's one of the better respected and known brands in the industry," Jeff Nash, an industry consultant and the CEO of BridgeMark Strategies in Charlotte, North Carolina, said in an interview. 

Nash said stories like that of Bakshi leaving for Morgan Stanley are likely indicative of someone who was "already considering leaving" which the recent events accelerated, since due diligence for any advisor looking to move typically takes at least three to six months. 

"They actually did really well during the 2008 crisis. And so even though they've got some troubles now, I expect that they'll weather these troubles, and overwhelmingly the advisors will get through it, and the clients will choose to stay with them," he said of First Republic.  

Golden handcuffs, in the form of big deferred compensation packages that keep top advisors chained to First Republic, will also be a deterrent to any impulsive moves — and likely limit an exiting advisor to places with deep pockets, according to Rob Sechan, the managing partner of NewEdge Capital Group and CEO and co-founder of NewEdge Wealth. NewEdge Wealth is an RIA based in Stamford, Connecticut focused on ultrahigh net worth, family office and institutional clients. 

Those options could include some well-capitalized RIAs. 

"I think the RIA community at large is in an advantaged seat," Sechan said, adding that while he could not share if he had been in talks with First Republic advisors, he believed firms like his own offered both the financial ability to offer big-enough transition packages, and perceived freedom from the complications of being associated with a bank. 

Overall, recruiters would still be "unlikely" to succeed in getting First Republic advisors to bite, but there is an opening, according to Neil Turner, the chief revenue officer of NewEdge Capital Group and co-CEO and co-founder of the affiliated New Orleans-based RIA NewEdge Advisors. 

"I think what's happening now, as they're reaching out to third party recruiters, is giving some companies expectations they may be successful in that endeavor where they hadn't been previously."