© 2020 Arizent. All rights reserved.

Amid IBD reorganization, Waddell & Reed sheds low-producing advisors

Register now

Faced with a changing industry, Waddell & Reed Financial is pursuing a robust makeover for its independent broker-dealer unit ― and shedding lower producers along the way. The firm has set out to make the unit, which is led by a new head, a self-sustaining entity with more productive advisors and better technology.

Waddell & Reed shed 413 advisors in 2017, pushing its headcount down to 1,367, incoming IBD head Shawn Mihal said this week in his first earnings call. At the same time, Waddell & Reed’s quarterly advisor productivity jumped 29% year-over-year to $76,900. Assets under administration also grew 10% to $56.7 billion.

The No. 11 IBD by revenue has been navigating what CEO Philip Sanders has called “a period of unprecedented change.” Thomas Butch, the Overland Park, Kansas-based IBD’s longtime head, said in November that he would be leaving the firm, which is in the middle of a pivot it refers to as “Project E.”

“In today’s world, where clients and advisors want more choice and options, we’ve made a commitment to kind of evolve the broker-dealer to make it more profitable on a standalone basis,” Sanders said in response to an analyst’s question, according to a transcript by Seeking Alpha.

“Don’t misinterpret that in terms of our commitment to the broker-dealer, because we are strongly committed to that,” he added. “We are just trying to get it to be more competitive in today’s world, where clients and advisors want more choice and opportunity.”

LPL's acquisition of National Planning Holdings' assets alone resulted in 10 moves of $744 million or more of clients assets.
December 18

In that vein, the IBD placed its advisors under 30 complex managers as part of a structural reorganization. Between that change and a freeze of its pensions, Waddell & Reed slashed its annual operating expenses by about $20 million, according to CFO Brent Bloss. In the fourth quarter, the firm also began using mark to market accounting in its pension plan.

Last year, the IBD also began to phase in by 2021 a minimum annual production requirement of $150,000 for all advisors. Two-thirds of the advisors who left the firm in 2017 had annual production of less than $75,000, Mihal said.

The production requirement falls in line with industry norms, he said. Waddell & Reed executives expect the number of advisors to continue to fall and the level of productivity to rise in 2018, Mihal added.

The inversely-related metrics and a rising proportion of unaffiliated products purchased by clients within the firm’s new advisory program represent the two greatest areas of change at the IBD, Mihal said in prepared remarks on the call.

The firm spent $5.4 million on Project E, which stands for “evolution,” in 2016, according to its latest annual report. The program has “set the stage for our future success,” he said, noting further changes ahead involving the IBD’s tech capabilities.

“We have begun the evaluation of our advisory programs, with an end goal of launching a suite of services that respond to a wide range of needs, including low-balance accounts, tech-savvy investors and high-end, high-touch clients,” Mihal said.

A spokesman for the firm, Roger Hoadley, said he was unable to immediately respond Wednesday to a request for greater detail, including a timeline for the upgrades.

The parent firm earned a net profit of $29.8 million in the fourth quarter, a slight year-over-year increase from $29 million for the same period a year ago and a sequential drop from $53.6 million for the prior quarter. One-time expenses related to the tax overhaul and pension accounting change cost $11.3 million.

For reprint and licensing requests for this article, click here.