MSSB/Merrill swap teams in broker war

At a time when Wall Street is talking about tightening its belt, Morgan Stanley Smith Barney LLC and Bank of America Merrill Lynch are still showing a willingness to shell out big bucks for top-producing financial advisers

At a time when Wall Street is talking about tightening its belt, Morgan Stanley Smith Barney LLC and Bank of America Merrill Lynch are still showing a willingness to shell out big bucks for top-producing financial advisers.

In high-level, top-dollar hiring deals announced last week, the firms essentially engaged in a swap: MSSB landed a high-profile team of five Merrill Lynch advisers in New York, while the Merrill side recruited a five-member MSSB team in Plano, Texas.

After the dust settles, the trade will add about $500 million to MSSB’s assets under management.

The leader of the team making the move to MSSB is Harvey Kadden, a 30-year veteran at Merrill Lynch and a 10-year member of its Circle of Champions, the highest recognition club for financial advisers at the firm. He was named a managing director at the firm three years ago and has been regularly listed as one of Barron’s Top 1,000 advisers.

$1B IN AUM

Mr. Kadden was joined by four other advisers — Mihir Patel, Randy Knopp, Tim Baker and Chris Barber. The five-man team had combined production of over $14 million in the trailing-12-month period and managed assets in excess of $1 billion, according to MSSB spokeswoman Christine Pollak.

Mr. Patel and Mr. Knopp were also Circle of Champions members and managing directors at Merrill Lynch, while Mr. Baker worked on the taxable-fixed-income desk for five years before joining the team three years ago. He was named a member of the Executives Club this year. Mr. Barber has been with Merrill Lynch since late 2008.

The team will report to Ben Firestein.

“It’s unusual to see 30-year veterans leave a firm,” said Danny Sarch, president of recruiting firm Leitner Sarch Consultants Ltd.

According to executive recruiter Rick Peterson, Mr. Kadden and his team had enough clout to arrange a recent meeting with senior executives at BofA to discuss issues regarding the brokerage and its relationship with the bank.

“My sources told me that these advisers posed some questions to the Bank of America executives and were not happy with the answers they got,” Mr. Peterson said, though he didn’t have details on the matters discussed.

BofA Merrill Lynch spokeswoman Selena Morris confirmed the departures of the five individuals but declined to comment further.

She did, however, provide information on the team that Merrill recruited from MSSB several days earlier. Jeffrey Dinkins, Peter Ianace, Jason Jaynes, William McGrath and Rohit Mehrotra managed $478 million in assets and had $4.4 million in production, according to Ms. Morris.

Although details of the offers made to the advisers weren’t disclosed by the firms, recruiters said that landing these types of high-profile teams costs big money.

“The numbers on the Merrill advisers are big, but what makes this a huge story is that they’re a high-quality team making a move … despite their retention packages,” said Mindy Diamond, who runs recruiting firm Diamond Consultants LLC. “This will send shock waves through [Merrill Lynch].”

With about 55,000 financial advisers among the four wirehouses, thousands of whom switch firms every year, the impact may not be quite so big, said Tim White, a recruiter with Kaye Bassman International Corp.

“It won’t shake Merrill to the foundations, but it might be an early indication of a lot more activity toward the end of the year and the beginning of next year,” he said.

Recruiters are hopeful that the deals signal a resumption of the lucrative game of musical chairs that characterized the period of the financial crisis, when fears of bank failures and forced mergers led to unprecedented movement of advisers among the big Wall Street firms. Signing bonuses ran to more than 300% of trailing-12-month production for many of the top producers.

RETENTION PACKAGES

In response, the wirehouses put in place retention packages that have for the most part been very effective at keeping advisers in their seats.

Last week, UBS Financial Services Inc. reported a 3.1% adviser attrition rate in the third quarter — the lowest level for the firm since 2005. The other firms also have had low turnover in their adviser ranks.

With many of those retention packages now winding down, however, the recruiters expect that wirehouse advisers will be more open to offers from other firms. Whether the offers will be as numerous or as lucrative as they have been in the recent past remains to be seen.

All the firms have announced plans to cut costs across their organizations, including their wealth management operations.

Last week, MSSB disclosed to employees changes to the firm’s compensation grid, reducing the payout for lower-end producers while adding incentives for bringing in new assets to the firm, according to Reuters. The open question is whether the firms will decide that it is worth the price to create new retention packages to hold on to their biggest producers.

If last week is any indication, it may be expensive. One longtime Merrill Lynch adviser, who asked not to be identified, suggested that a new round of recruiting wars to gather assets would raise compensation costs for the firms when they arguably can’t afford it.

“Morgan had to pay a lot of money to get those guys. If you’re looking for more evidence that Wall Street doesn’t know how to value assets, this is a prime example,” said the adviser, who has no plans to consider the offers that he regularly receives from other firms.

Email Andrew Osterland at [email protected]