On Recruiting

Scandal does lead to adviser attrition — but not right away

Attention media: Connecting today's news to today's defections ignores the logistics of the business

Jan 9, 2013 @ 12:08 pm

By Danny Sarch

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Quick snapshot into Danny Sarch's life: Mega Producer Team (MPT) leaves Big Wirehouse on a Friday. Like death and taxes, a few things are certain. First, the Losing Big Wirehouse will slowly let leak that the team had “money problems,” or that the business was in trouble, or that the biggest clients of said team were going to stay at the firm. It's partly to make themselves feel better, and it's partly spin to retain clients, because nobody likes to admit that they actually lost someone good. (One of Sarch's rules: In the Wealth Management Industry, nobody will ever admit that they lost someone good or hired someone bad.) Second, one of the reporters covering the Wealth Management Industry will call me to discuss the move. And in an attempt to explain the reason why Mega Producer Team left Big Wirehouse, they will associate it with the latest industry scandal.

For example, Bank of America announced this week a multi-billion dollar settlement. Somewhere in the country, a Merrill Lynch team will move this weekend to some other firm. To the neophyte, this is cause and effect; the Merrill Lynch team moved because the scandal made the team uncomfortable staying at Merrill Lynch. The reality, of course, is much different. The typical interviewing and due diligence cycle for a MPT takes months. Even after acceptance, execution of the move also takes months. In other words, the decision to leave happened long before the latest scandal. In my example, the latest news might make it easier for the MPT to explain the decision to their clients and is an additional talking point, but it had absolutely no effect on the decision itself.

What does surprise me, however, is that senior leadership within the Big Wirehouses sometimes uses the flawed analysis to either explain their attrition or worse yet, to crow about their own lack of attrition. For example, Morgan Stanley completed their technology conversion in July 2012. More specifically, the legacy Smith Barney offices were moved to the new “3D” system at this time. The bugs, deficiencies, and overall difficulty in using the system are still being dealt with six months later and have been widely reported in the press. Sources told me that many in senior leadership were enthusiastic about how attrition in the weeks and months after the conversion was lower than it had been earlier in the year.

The reality, however, is much different. At the height of the confusion with the new system, advisers were struggling to service their clients adequately. Moving while the system was so screwed up would only make clients angrier than they already were. Some cynics suggested to me that the 3D conversion was planned in order to slow attrition! (Not even I believe this one.)

And the consequences of 3D are still being felt with advisers continuing to move because of it, months after the precipitating event: By my lights, the mistakes still resonate and will drive advisers away from Morgan Stanley throughout 2013 and maybe beyond.

Are there Merrill Advisers who will view this latest Bank of America bad news as a “last straw”? Absolutely. But you won't be hearing about these moves for quite a few months.


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