Morgan Stanley says recruiting and attrition have slowed down

If wirehouses can successfully reduce their reliance on signing bonuses to recruit brokers, they could increase profits

Jul 19, 2017 @ 2:13 pm

By Bruce Kelly

The decision by three of the four wirehouses to reduce their reliance on signing bonuses to recruit brokers from rival firms appears to be paying off.

During a conference call Wednesday morning to discuss second-quarter earnings, senior Morgan Stanley executives noted that lower levels of recruiting and attrition were helping their business.

"Recruiting and attrition has slowed down," Jonathan Pruzan, Morgan Stanley's chief financial officer, said. He did not cite specific numbers in discussing recruiting on the call.

Firms like Morgan Stanley incur high costs when they pay experienced brokers recruiting bonuses. Indeed, Mr. Pruzan said he expects a 1.5% boost to the firm's bottom line after the bonuses Morgan Stanley paid to Smith Barney brokers come off the books in 2019. The two firms announced their merger in early 2009 during the darkest days of the credit crisis.

In May, Morgan Stanley said it was joining two of its major competitors, Merrill Lynch and UBS Wealth Management Americas, in reducing its reliance on recruiting experienced financial advisers. At the time, the firm said it 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.

"Frankly, there are fewer competitors," said CEO James Gorman. "It's a consolidated industry," he said, adding that Morgan Stanley is an amalgam of a number of large brokers, including Dean Witter Reynolds and Smith Barney.

Bank of America CEO Brian Moynihan did not discuss Merrill Lynch's recruiting efforts during yesterday's earnings call. The bank owns Merrill Lynch.

While recruiting may be slowing down at large firms for the moment, expect to see a flurry of recruiting deals as the end of the year draws nearer, said Louis Diamond, vice president and senior consultant at Diamond Consultants, an industry recruiter.

That's because Merrill Lynch and Morgan Stanley have put deadlines for most of the advisers they are currently recruiting, he said.

"The major firms have more commitments now on the books then they have in years," Mr. Diamond said. "The shot clock is ticking."

Morgan Stanley's wealth management group, with 15,777 advisers, hit a number of milestones in earnings for the quarter that ended in June.

Those included record net revenues of $4.2 billion, up 2% from the prior quarter and an increase of 9% from the same quarter last year. It also reported a record profit before taxes of $1.1 billion, an increase of 9% from the quarter that ended in March and up 23% from the same quarter last year.

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