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Institutional Sales and Trading Section Seven: Private Client Services (PCS)

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The private client services (PCS) job can be exhilarating, exhausting and frustrating - all at once. As a PCS representative, your job is to bring in individual accounts with at least $2 to $3 million in assets. This involves incessantly pounding the pavement and reading the tape (market news) to find clients, followed by advising them on how to manage their wealth.

PCS is a highly entrepreneurial environment. Building the book is all that matters and managers don't care how a PCS representative spends his or her time, whether this be on the road, in the office, or at parties - the goal is to bring in the cash. Culture-wise, therefore, one typically finds a spirited entrepreneurial group of people, working their own hours and talking on the phone for the better part of the day. It is not uncommon for PCS pros to leave the office early on Fridays with a golf bag slung over one shoulder for a game with existing clients or with a few big-shots with money to invest.

The Growth in PCS



Just a few years ago, PCS was considered a small, unimportant aspect of investment banking. PCS guys were essentially brokers, always bothering other departments for leads and not as sophisticated as their counterparts in corporate finance or institutional sales and trading. Times have changed, however. Today, spurred by the tremendous stock market wealth that has been created over the past few years, PCS is a rapidly growing part of virtually every investment bank.

Getting in the door

It takes an MBA these days, or a stellar record as a retail broker to become a private client sales representative. Even firms such as Merrill Lynch, which historically promoted retail brokers to the PCS role, is moving more and more toward hiring only those with business degrees from top schools and proven selling credentials, rather than proven brokers. PCS is also evolving into an entirely different business from traditional retail brokerage. Whereas retail brokers make money on commissions generated through trades, PCS reps are increasingly charging clients just as money managers do - as a percentage of assets under management.

A typical fee might be 1 percent per year of total assets under management. This fee obviously increases as the value of the assets increases, thereby motivating the PCS worker to generate solid returns on the portfolio. This move to fee-based management is designed to take away the incentive of a salesperson to "churn" or trade an account just for the sake of the commissions. One should note, however, that the trend to charge a fee instead of commissions is just that - a trend. Many Wall Street PCS reps still work on a commission basis.

The Associate Position

Once in the door, as a PCS associate, extensive training begins. The PCS associate must be well versed in all areas of the market and able to understand a wide variety of investing strategies. While a corporate bond salesperson has to know only corporate bonds, a PCS rep must be able to discuss the big picture of the market, equities, bonds, and even a slew of derivative products. Thus, training is said to be "intensive" in PCS, with many weeks of classroom learning.

Once training is complete, a new PCS associate often works to find his way onto a team, which pairs PCS beginners with one or two experienced PCS reps. (Teams are the latest craze on Wall Street.) The process of matching a new associate onto a team is driven largely by personality and fit. Once paired with an older rep or two, the associate works to understand the process of finding new clients and managing a portfolio of assets.

Generally speaking, PCS hires are given two years to "build a book," or establish a reasonable level of business for the firm. While salaries for PCS associates out of business school matches those of other Wall Street hires ($75,000 plus a $25,000 bonus in the first six months), they quickly are shifted to a straight commission basis. With a typical client list after two years, PCS associates tend to take home around $150,000, upwards of $250,000 if they are phenomenal.

PCS associates must establish themselves in the first two years through any means possible. Typically, once the PCS associate has learned how to pitch to clients and how to give money-management advice, he or she begins to look for leads. As PCS is a sales job, leads and clients are developed just like at any other sales job. Phone calls, networking and visiting potential clients are key. To find leads, associates might do any of the following:
  • Read the tape (follow market news): Many news articles in the markets discuss companies merging, companies going public, companies selling out, management selling stock in their companies, etc. In these cases, there often are CEOs and others on the management team who will find themselves with gobs of cash that must be invested. These are excellent sources of leads.

  • Follow up with leads from other areas within the investment bank. A substantial numbers of corporate finance bankers represent management teams selling stock in public offerings, or selling stock in mergers. The real bonus is that the bankers already know the CEO or CFO with newfound wealth, and can provide an excellent introduction.

  • Networking: The power of being a "friend of a friend" cannot be underestimated. That is why PCS reps spend time at parties, functions, on the golf course, and anywhere else they can find leads. Often an "in" such as an introduction provided by a personal friend is the best lead.
Pay beyond the associate level

After a successful client list has been established, the sky is the limit in terms of pay. The best of the best PCS pros can earn well over a $1 million a year. The bottom-of-the-barrel PCS reps, however, may take home a mere $200,000 or so. On average, $500,000 is an annual number for PCS pros working for Wall Street firms. Insiders say it takes an average of five or six years to reach that level, however. Still, there are exceptions. One insider at Goldman Sachs reports that a PCS representative with that firm reached $3.4 million in compensation only five years out of business school.

Managing the portfolio

You may wonder how a PCS representative with a substantial client base and millions of dollars under account manages all these assets. It actually depends on the firm. Some firms break the PCS job into relationship managers and portfolio managers. For example, at J.P. Morgan, some PCS reps solely manage the portfolios of the various accounts, and are even paid a straight salary and bonus, depending on returns, while other reps work on client relations. Other firms, with newly built or bought asset management divisions, are attempting to pair PCS and AM (asset management) in order to utilize the existing money management expertise. Goldman Sachs, for example, has sought to do this, but cultural differences between the divisions and the past ingrained modus operandi may be a hindrance. Regardless of how the portfolio is managed, the movement toward teams will be a key to melding asset management and relationship management expertise on Wall Street.

Key success factors in PCS

One should keep in mind that PCS divisions essentially want to hire good salespeople, not good number crunchers. They don't need or want quant jocks in PCS; they want salespeople and schmoozers to find and land new clients. The key to succeeding in PCS is generating more assets to manage.

Good PCS reps will manage their client relationships extremely well, as these clients become the bread and butter for them over time. Understanding the goals of clients and executing them are extremely important. For example, one finds in PCS that some investors are not out to "beat the S&P" at all, and would rather earn steady returns without risking their principal. Remember, a wealthy and retired ex-CEO may not care that his $50 million jackpot beats the market. After all, he's got much more than he could spend in a lifetime. Lower risk and decent returns work just fine in some cases, and PCS representatives must be attuned to these individual differences.
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