More Lehman defections to come, experts predict

The UBS shock-and-awe hire last Wednesday of more than two dozen Lehman Brothers advisers who manage about $11 billion in assets is an indication Barclays PLC is going to have a hard time holding on to top talent in its newly acquired American wealth management division, according to industry observers.

The UBS shock-and-awe hire last Wednesday of more than two dozen Lehman Brothers advisers who manage about $11 billion in assets is an indication Barclays PLC is going to have a hard time holding on to top talent in its newly acquired American wealth management division, according to industry observers.

“Barclays is a very fine firm, but they must be extremely proactive about letting the advisers know what the integration plan will look like and how the union [with Lehman Brothers Holdings Inc.] will benefit their clients,” said Liz Nesvold, managing partner at Silver Lane Advisors LLC, a New York investment bank. ”Moreover, they need to grease the wheels and convey to the producers what their retention deals will look like. Time is not on their side.”

“We haven’t seen the last of these defections,” said Tim White, a partner in executive-recruiting firm Kaye/Bassman International Corp. of Plano, Texas. “Barclays is underknown domestically and has to establish their own identity in the private-wealth space, but they don’t have one yet. It puts a Lehman adviser in a tough spot.”

What’s more, it remains unclear what kind of retention packages Barclays Wealth is offering advisers from Lehman’s Private Investment Management unit, which it acquired earlier this month when the venerable New York-based investment banking firm filed for bankrupcy protection.

One recruiter, who asked not to be identified, said Lehman advisers outside New York are receiving much lower retention packages than those in Manhattan.

A spokesman for London-based Barclays declined to comment by press time.

Zurich, Switzerland-based UBS AG also did not reveal details of its compensation packages to the defecting Lehman advisers, but industry executives speculated that while they are undoubtedly substantial, market conditions may have allowed UBS to pay less than it might have otherwise.

“I would speculate that UBS [Financial Services Inc.] is offering quite attractive upfront guarantees for these brokers, along the lines of $100 million to $200 million,” said Steven Levitt, managing director and co-founder of investment bank Park Sutton Advisors LLC in New York.

However, he added, UBS may have been “able to get away with paying less in light of the market environment and the brokers’ desire to move as soon as possible.”

Mr. White noted that the restructuring of Wall Street, including the pending acquisition of New York-based Merrill Lynch & Co. Inc. by Bank of America Corp. of Charlotte, N.C., has resulted in a glut of brokers and advisers on the market.

“The supply is putting pressure on demand,” he said. “I don’t think the deals will be as rich.”

Nonetheless, UBS’ ability to attract the Lehman teams based in New York, Los Angeles and San Francisco, which had more than $60 million in combined production, was seen as a genuine triumph, especially in light of the negative headlines the bank generated this year when it took massive write-downs and was caught up in the auction rate securities imbroglio.

“Those teams could have gone anywhere,” said Tim Welsh, president of Larkspur, Calif.-based Nexus Strategy LLC, a leading wealth management industry consultant. “This shows that the big brands still have legs.”

Others cited UBS’ strong capitalization, global presence, Swiss pedigree and asset base of $685 billion in assets under management in the United States.

“Advisers have a responsibility to their clients, and UBS is a big, well-known company that’s not going down,” said Trey Reynolds, managing director of RSR Partners, an executive-search firm in Greenwich, Conn.

But he also pointed out that not all of the $11 billion under management the teams had while at Lehman will automatically move to UBS.

“Everything is not going away from Lehman,” Mr. Reynolds said. “It’s their lifeblood, and [Barclays] is going to fight as hard as they can to keep it.”

Lehman has about 350 advisers, according to a published report.

The effect of the UBS coup on independent-wealth managers re-mains unclear.

Just a few weeks ago, Convergent Wealth Advisors of Rockville, Md., made headlines when it scooped up two advisory teams from New York-based Citigroup Inc. that oversaw an estimated $7 billion in assets (InvestmentNews, Sept. 8), bringing its total assets under management to around $16 billion.

But the UBS deal demonstrates that “not every adviser was cut out for the entrepreneurial independent model,” said Alois Pirker, senior wealth management analyst for Boston-based consultant Aite Group LLC. “Big institutions that can spend money on the adviser and on infrastructure can be very attractive,” he said.

Not surprisingly, Convergent chief executive Steve Lockshin cast his bigger competitors in a less flattering light.

“Those companies are losing assets that need to be replaced,” he said.

“You’re definitely going to see more advisers go to independents.”

Indeed, a UBS team in Dallas headed by Charles McKinney that managed $1.3 billion in assets defected from the bank just last week.

And in California, Matthew Cooper, managing director of private-client services for Beacon Pointe Advisors of Newport Beach, Calif., which has $4.3 billion assets under management, said his firm recently received $20 million from a Lehman account.

Clients of large firms in turmoil are exploring their options, he said, adding that independent firms “will directly benefit.”

E-mail Charles Paikert at [email protected].