JPMorgan Securities, the brokerage arm of banking giant JPMorgan Chase & Co, is trying to lure advisers from Wall Street rivals with an unlikely pitch: "We're actually a small boutique."
Advising individual investors with stock brokers is a new addition to the wealth management business of JPMorgan, already one of the world's largest private bankers to the ultra-rich. The push makes the company a big competitor for the same top advisers coveted by Morgan Stanley, Bank of America Corp's Merrill Lynch and UBS AG .
About 200 brokers from those firms, as well as Barclays Plc's Barclays Wealth, Deutsche Bank and others, have joined JPMorgan Securities in the three years since JPMorgan took over Bear Stearns and inherited a private-client business catering to well-heeled clients.
The unit ended 2011 with 439 advisers. It expects to add up to 75 this year and reach 650 over the next four years, Chief Executive Officer Greg Quental said in an interview.
"We're seeing interest from advisers across a range of organizations," said Quental, noting that recent struggles at rival firms have created an opportunity to recruit and expand.
Competition for top brokers is fiercer than ever, as almost every large bank wants to attract wealthy American customers. As a newcomer to this corner of the market, JPMorgan is selling itself as the best of both worlds.
"We're a boutique plugged into a massive financial institution," said Quental, a former Bear Stearns strategy executive who became JPMorgan Securities' CEO in August 2010.
Claiming to be small may seem quite a stretch for a bank that is the largest in the United States by assets and employs 260,000 people -- roughly the population of Buffalo, New York. JPMorgan is also one of the country's largest mortgage, credit card and consumer lenders.
But when it comes to the brokerage, Quental says JPMorgan Securities has just three layers: brokers, branch managers and himself. Rivals may have division, regional and branch-complex managers between brokers and the top boss.
And even if it reaches its long-term goal of 1,000 brokers, JPMorgan Securities would still be tiny compared with Merrill's 16,100 advisers and Morgan Stanley's 17,600.
The unit's finances have not been disclosed since 2009, when 376 brokers generated $419 million in revenue. Assuming no change in average production, JPMorgan brokers last year would have generated revenue of $490 million -- a rounding error at a bank that generated $100 billion.
JPMorgan brokers are among the most productive on Wall Street, Quental said, generating revenue at an average of more than $1.1 million each last year. By comparison, UBS advisers averaged $870,000, the highest among the largest U.S. brokerage firms.
Recruiters, citing advisers they have placed, say JPMorgan Securities has maintained Bear's high-end strategy and small-firm intimacy.
Of course, emphasizing "small" is popular in the wealth management business these days. That appeals not only to advisers, but also to investors who want personalized service.
Other big finance companies have created small, specialized units when they set out to attract elite investors. Merrill Lynch has its Private Banking and Investment Group, while UBS and Morgan Stanley have formed "private wealth management" arms.
THREE WEALTH UNITS
But with the brokerage, JPMorgan now has three businesses selling wealth management services: Its private bank caters to families with more than $25 million to invest, while JPMorgan Private Wealth Management requires at least $5 million.
Private banks typically provide estate and tax planning, loans and a range of traditional and alternative investments. They deploy teams of specialists led by an account manager.
In contrast, JPMorgan Securities is a traditional brokerage that trades stocks, bonds and other investments on commission, although it also manages portfolios for a fee. There is no minimum account size.
Clients choose which unit of the bank they want to do business with, Quental said, and there is no requirement within JPMorgan Securities to ship accounts up to the private bank.
"We recognize there are clients who prefer to work with a private bank or have financial needs that are most appropriately served by a private banking model," he said.
JPMorgan Securities has had losses, to be sure: About 100 brokers retired or moved to other firms since 2008. The biggest departure was New York broker Richard Saperstein, who in 2009 took a $10 billion book of business to HighTower Advisors.
The small-firm pitch will appeal to brokers at big banks, many of whom are reassessing which company they want on their business cards, Quental said.
For example, the 2009 merger of Morgan Stanley and Smith Barney continues to generate integration problems and a clash of cultures, and advisers at Merrill Lynch have been vexed by management changes and Bank of America's credit woes.
While Merrill brokers also say they feel pressured to sell Bank of America loans and banking products, JPMorgan Securities advisers appear to have few complaints about interaction with the parent's myriad businesses, according to recruiters.
"The question is always: 'Where does the bank end and the brokerage begin?'" said veteran New York broker recruiter Michael Kelly. "We're told (JPMorgan Chase CEO) Jamie Dimon is very supportive of the division and gives it lots of flexibility."
Recruiters say a significant number of brokers tied down by crisis-era retention packages will be considering a move as those binds start to loosen this year.
JPMorgan Securities generally pays recruits a bonus of about double their trailing-year fees and commissions, a veteran recruiter said, compared with 330 percent top-of-the-market deals dangled by the big Wall Street houses. That means a broker generating $2 million in revenue could leave $2.6 million on the table by choosing JPMorgan.
Quental says recruits will accept less money up front in exchange for the stability and reputation of the company, as well as the opportunity to build up their practices.
Scale and the capabilities it brings are an equally important part of the pitch. Over the past year, the company has upgraded technology and forged closer ties with the rest of its investment banking and consumer businesses.
The unit plans to install $250 million worth of adviser workstations and build a $40 million online services platform, he said. JPMorgan Securities also offers some of the hedge funds and specialized loans available though JPMorgan Private Bank.
"Boutiques don't have those kinds of capabilities," Quental said.
Broker Mark Glasser, who joined JPMorgan Securities in New York in September from Barclays Wealth, said his new employer gives him access to global investment research that he finds invaluable as he advises 15 families whose assets range from $10 million to "several hundred million" dollars.
The former Lehman Brothers and Morgan Stanley adviser also values the financial strength of parent bank JPMorgan, as well as his access to senior management. "It's easy to get lost in a firm with thousands and thousands of brokers," Glasser said.
(By Joseph A. Giannone)