MSSB exec: Smith Barney broker attrition has stabilized

Since the end of July, “attrition is back to 2006 levels,” Mr. Johnson said in an interview yesterday.

MSSB suffered a net drain of $8.8 billion in assets during the third quarter.

But the loss was simply “the residual effect” from broker defections, Mr. Johnston said, because it takes several months to transfer accounts.

Since June, when Morgan Stanley and Smith Barney officially combined forces, the joint venture lost 284 reps, ending September with 18,160 producers who managed $1.5 trillion in client assets.

Earlier in the year, as InvestmentNews reported, Smith Barney was losing near 80 reps each week.

The movement of Smith Barney brokers has been sparked by problems at Citigroup Inc. and the losses reps suffered on its stock, Mr. Johnston said.

But since summer, “the financial advisers that had to make a move [for financial reasons] are gone,” Mr. Johnston said.

Recruitment across the industry has slowed, Mr. Johnston added.

Many brokers are “on a [promissory] note from all the [recruitment] deals,” he said, and so are restricted from moving unless they can pay back what they owe.

“The other thing is [that] it's much harder to move a book, because of the turmoil — many clients want second opinions and want to do something different,” so they aren't so willing to follow their broker, he said.

MSSB recently matched Merrill Lynch & Co. Inc.'s offer for top-quintile producers, which can total to 330% of past production if a recruit meets aggressive growth targets over a number of years. (See related story here)

“We did that in response to Merrill,” Mr. Johnston said. “The only difference is, Merrill is buying out [a recruit's] deferred-compensation balance,” which MSSB won't do.

“That's paying twice in my mind,” he said.