WeWork drama continues, Hedge fund fees, AI on Wall Street

Hi everyone,

I'll take a break from WeWork this week (although we do have a lot of good stories out this week including this bombshell) to focus on a new and growing area for us — the future of wealth management.

Today, we published a big scoop that Bank of America's massive wealth arm, Merrill Lynch, has hiked trainee financial advisers' starting salaries by $10,000. In an interview with Merrill president Andy Sieg, he told BI wealth reporter Rebecca Ungarino that the firm plans to hire more than 1,500 financial adviser trainees this year, while scaling back on experienced hires.

Why is this such a big deal?

The firm is aiming to stay competitive as the war for financial adviser talent ratchets up in a tight US labor market — and around a third of advisers across the industry are expected to retire in the next decade.

Wells Fargo's adviser arm also told us it's launched a new pitch to draw new talent.

It's been tough for the wealth industry to convince new college grads to join their ranks. Young people working in wealth tell Business Insider that the allure of lucrative fields like tech, the daunting challenge of drumming up business as a newbie, and lingering unease with the industry for those who came of age during the financial crisis help explain why the jobs may have seemed less appealing.

Yet the future of the industry to find the next generation of top advisors is crucial. The average adviser's age is around 52, according to Cerulli Associates data, and many are seen retiring over the next decade. Only around 9% are under 35.

Separately, we've also been writing a lot about the race to zero-fee commissions among the online brokers in the last few days. Interactive Brokers, Charles Schwab, TD Ameritrade, and E-Trade all moved to eliminate fees for US-listed trades in late September and early October, in turn wiping out huge chunks of the companies' market caps.

There are a number of important factors influencing the choice to dump fees, Rebecca reports. Legacy brokers and big banks alike are rushing to compete with digital entrants for younger users. Meanwhile, US interest rates are falling at a faster clip than analysts had earlier expected.

But while the e-brokers' stock prices are feeling pain, Brett Redfearn, the SEC's trading and markets head, praised their decision to slash fees during an investor conference in Washington this week.

"It is always good to see competition bringing down prices for investors," Redfearn said.

Stay tuned for more from BI as we continue to follow this trend and let us know what else we should be watching in the wealth space.

Thanks for reading,

Olivia

Wall Street gave Adam Neumann up to $500 million he was going to pay back after WeWork's IPO. Now that the offering is pulled, banks are scrambling to hammer out a solution.

WeWork co-founder Adam Neumann is working with banks to consider new terms for a loan that he took out before the company filed to go public, according to people with knowledge of the matter.

Neumann has already drawn down $380 million from the loan. He can no longer pay the loan with proceeds from selling WeWork shares publicly, since the co-working company has abandoned its IPO for now.

Neumann may be required in the talks to put up some of his properties or other assets as collateral for the loan, one of the people said.

READ MORE HERE »

Citi has quietly undergone a massive restructuring over the past year. Here are the businesses it overhauled and the executives who departed.

Citigroup declared in 2017 its post-financial crisis restructuring was complete, but over the past 18 months the bank has quietly, slowly undergone another significant overhaul.

A little over two years after its investor day, the firm and leadership surrounding CEO Mike Corbat looks vastly different. Just five of the 14 executive officers on Corbat's team remain.

In a recent meeting with bank analysts, Citi executives signaled that the slow-burn restructuring may be nearing completion.

Here's a recap of businesses Citi overhauled and the executives who've departed over the past 18 months.

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Hedge-fund investors want a deal on fees. Managers don't start negotiating until the check hits $120 million.

The hedge-fund industry's notoriously high fees have been pushed down as managers have been more willing to negotiate.

But talks start only with the guarantee of a big check, according to data from eVestment. To lower management fees, a $119 million check was required on average. To cut performance fees, the cost was even higher — $133 million.

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Wall Streeters say AI is going to disrupt their business more than any other tech. Many big investors are getting left behind.
A recent survey conducted by the research firm Greenwich Associates found that only 23% of hedge funds and asset managers are using artificial intelligence on their trading desks.

That's compared to 63% of banks and 60% of trading venues using the cutting-edge tech.

As hedge funds and asset managers face shrinking fees, the cost required to internally build AI tools is viewed as too high.

READ MORE HERE »

Saba Capital is targeting a unit of Legg Mason in an activist campaign. Another Legg Mason business stands to profit if it's successful.

Boaz Weinstein's Saba Capital, a $1.7 billion hedge fund, has taken activist positions in closed-end funds run by large asset managers like BlackRock and Neuberger Berman with the hopes that new board members will increase the price the funds trade at.

Saba is targeting two closed-end funds run by Western Asset Management, which is owned by the $750 billion manager Legg Mason.

Legg Mason, however, is also backing Saba in its fight against its own asset manager, thanks to its ownership of EnTrust Global, a $20 billion fund of hedge funds and one of Saba's biggest investors.

READ MORE HERE »

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