Morgan Stanley Joins Rivals in Curbing Broker Recruiting -- Update
May 23 2017 - 2:43PM
Dow Jones News
By Michael Wursthorn
Morgan Stanley will curtail its recruiting of veteran brokers,
signaling that Wall Street is no longer willing to gorge on the
pricey practice of paying top-dollar to poach talent.
The New York firm told brokerage managers on Tuesday that it
would "significantly reduce experienced adviser recruiting" in an
effort to tamp down those costs, while spending more on supporting
existing brokers and investments in new technology, according to a
memo from wealth-management heads Shelley O'Connor and Andy
Saperstein that was viewed by The Wall Street Journal.
Morgan Stanley is the latest brokerage to say it wants to cut
back its recruitment activities, which usually involved paying
brokers six- or seven-figure signing bonuses, Wall Street's main
mechanism of attracting brokers, assets and revenue.
Such bonuses were structured as loans forgiven over as long as
eight or nine years, with brokers initially getting paid up to 150%
of the annual revenue they generated off fees and commissions. Such
deals usually included back-end portions that brokers would earn
after hitting certain asset and revenue targets over the life of
the deal -- an arrangement that had become problematic under new
retirement rules set to take effect next month since they could be
perceived as a conflict of interest. Brokers who changed firms
before the deal's term ended were usually forced to pay back a
remaining portion.
Executives had bemoaned the practice for years as costly and
called it a "zero-sum game" among the four main brokerages --
Merrill Lynch, Morgan Stanley, UBS Group AG and Wells Fargo &
Co. -- as they routinely traded brokers with one another. Still,
brokerage executives viewed it as a necessary pipeline for asset
and revenue growth.
The problem, recruiters say, is that brokerages were hesitant to
pull back from recruiting if their rivals wouldn't. That was until
UBS Group said last year that it would reduce by 40% the number of
brokers it recruited annually.
Following UBS's lead, Merrill earlier this month told some
executives that it would pause all recruiting after June 1 as it
developed a new incentive package aimed at courting the industry's
most valuable free agents, the Journal previously reported.
Morgan Stanley will continue to honor recruitment agreements it
has with brokers through June 16 and have a start date no later
than Sept. 1, according to the memo to managers. In the meantime,
Morgan Stanley is developing new recruiting policies that will be
revealed in the coming weeks, the memo added.
The money Morgan Stanley saves from its recruiting pullback will
be funneled into a series of investments aimed at encouraging the
firm's roughly 15,700 brokers to attract more client assets and
revenue, similar to changes made in the wake of decisions by UBS
and Merrill. That includes hiring hundreds of tech-savvy employees
known as digital adviser associates who will help train Morgan
Stanley's brokers on new digital tools, including a robo adviser
that will be rolled out later this year to help brokers attract and
keep younger clients, according to people familiar with the
matter.
Still, even though brokerages have gained the confidence to
pause their recruitment activities, those decisions may not last
long, recruiters say, especially as firms such as Raymond James
Financial Inc., the U.S. brokerage arm of the Royal Bank of Canada
and Edward Jones continue to aggressively hire brokers from
rivals.
"Firms start to coast when they stop recruiting," said Rick
Peterson, president of a brokerage recruiting firm that bears his
name. "Six or eight months later sometimes, there's a manager's
meeting and leadership gets input from the field that scares them.
Then they say it's time to get back out into hiring mode
again."
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
May 23, 2017 14:28 ET (18:28 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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