Why Big U.S. Brokerages Only Want Multi-Millionaires Now

[dealmaker]

They want to whittle down smaller accounts.

Big U.S. brokerages are redefining the term “wealthy” in their pursuit of ever-richer clients to prop up margins eroded by historically low interest rates and growing regulatory burdens.

Brokerages owned byMorgan StanleyMS-0.45%,Bank of AmericaBAC-1.23%andWells FargoWFC-0.33%have been using new incentives and penalties to push financial advisers to bring in more multi-millionaires and whittle down smaller accounts.

Clients with less than $750,000 are now considered “mass affluent,” meaning they may not get the same service as top customers because their financial needs are simpler, said Kendra Thompson, who heads the wealth and asset management division of consulting firm Accenture. Industry sources say that figure was closer to $250,000 before the financial crisis.

In a departure from their decades-long commitment to all investors, brokerages are increasingly referring customers with as much as a couple hundred thousand dollars to call centers and digital advice platforms, executives and advisers say.

http://fortune.com/2016/07/29/us-brokerages-millionaires/?iid=leftrail

 

[ScalperJoe]

Interesting article. It mentions Wealthfront and Betterment. I looked up both firms, and they have amassed billions in AUM. In fact, Wealthfront clients can start with as little as $500, however it claims their "tax loss strategy" is designed for accounts with $100k and up.

Betterment has no minimums to open an account. I just saw another advertisement on Fidelity regarding their "Fidelity GO" product, also aimed at clients who want to automate their investment strategies. Robo advisory firms will cater to the millennials who are well versed in the digital world and will more likely accept an automatic strategy rather than pay higher fees for more personalized service. If the big firms start to implement restrictions by creating a higher barrier to entry, then it's going to generate more business for the sub $100k firms.

 

[HappyTrader]

Makes sense. 750k is not much these days. For investors a boiler-plate response of 60/40 stocks/bonds, with the 60 in one or two ETFs, and the 40 in another one or two. In fact, there are retirement ETFs that even handle it as an all in one solution.

So the whole conversation with the advisor would be:
C: I have 750k, I need to invest
A: I recommend you buy SPY. It has a proven record, a dividend, and less than 1% probability of default. Thank you.

Done..... (not much money in it for the advisor there tho).

When you start dealing with a decent amount of money is when you start facing more interesting investment portfolios.

 

[TradeCat]

Those with smaller account sizes won't be around the brokerage for long. They'll frequent elite forums, listen to made-up bad advice, get inspired by fake anonymous internet users who claim to be making millions trading Futures, Options and Forex, and then lose their small accounts on the markets. Why the hell would a broker want to waste their precious resources on losers?

 

[Ryan81]

LOL @TradeCat I don't know if you are trolling or serious, but you got a chuckle out of me this morning

 

[lawrence-lugar]

Size matters~

 

[thescalpmaster]

I think it's pretty simple.

Smaller accounts trade small and bigger accounts trade big.

Big = large brokerage. Opening a small trade or a large trade requires same effort from the broker. So why not go big by offering them slightly-better(premium) services and weed out the small guys?

It's a legit model. Even my broker was talking about this some time ago.

 

[DirectMarketAccess]

Pretty sure TradeCat is serious. There will be less and less retail traders over time. The big firms are more and more averse to risk (tiny accounts using way too much leverage) every year, and heavily prefer larger accounts, that give them better floats on their cust seg.

 

[dealmaker]

Those with smaller account sizes won't be around the brokerage for long. They'll frequent elite forums, listen to made-up bad advice, get inspired by fake anonymous internet users who claim to be making millions trading Futures, Options and Forex, and then lose their small accounts on the markets. Why the hell would a broker want to waste their precious resources on losers?

Best way to have a small account is start with a large one....