In a significant break from Wall Street tradition, Morgan Stanley is joining its competitors in reducing its reliance on recruiting experienced advisers.
In an internal memo viewed by InvestmentNews, Morgan Stanley on Tuesday outlined the changes that would emphasize building staff over recruiting. It will focus in the future on digital platforms, teams of advisers and making its branch officers more efficient. The memo was sent to Morgan Stanley's regional directors and branch managers from Shelley O'Connor and Andy Saperstein, co-heads of wealth management.
"Going forward, we intend to increase the investments and resources supporting our existing talent and platforms even further and significantly reduce experienced adviser recruiting," the memo said. "Specifically, we will honor agreements with recruits that are fully approved and in our pipeline by June 16 and have a start date no later than September 1, subject to our normal background and diligence process. We will develop new recruiting policies consistent with our objectives in the coming weeks."
For decades, recruiting large producing brokers or large teams of brokers has been the lifeblood of many retail brokerage firms. The downside for firms is the large expense that comes from huge signing bonuses, which traditionally have been two to three times a broker's annual revenue, known as gross dealer concession in the industry.
But wirehouses like Morgan Stanley have been pulling back from large compensation for recruits since last October, when the Department of Labor issued guidance about its fiduciary rule for retirement accounts. Specifically, hiring incentives such as recruiting bonuses could be contrary to the rule because they can contain sales targets. Big firms almost immediately cut their bonuses to recruits.
Merrill Lynch earlier this month made an announcement, stating that, as of June 1, the firm will step away from the traditional adviser recruitment model, no longer offer signing bonuses for experienced advisers who have at least eight years of industry experience. At the same time, Merrill Lynch launched a pilot program to focus on recruiting and training younger advisers as a way to grow its wealth management business.
Morgan Stanley intends to focus on investing in its current staff, according to the memo. It also intends to hire "hundreds" of additional wealth adviser associates and digital advisor associates in order to buttress its branch offices, according to the memo. "Our commitment is backed by the major investments we are making to help our advisers grow their businesses by deepening and broadening their client relationships and delivering holistic advice built around client goals," according to the memo.