Morgan Stanley reports $78M in severance to axed wealth management employees

It's not clear what type of employees were laid off, but one industry executive says big firms are rethinking the hiring of administrative assistants.

In May, Morgan Stanley’s plans to cut 3,000 positions — roughly 5% of its staff — by the end of June did not include financial advisors or support staff, according to multiple reports at the time.

Financial advisors are rarely included in layoffs at big firms like Morgan Stanley because they generate revenue and firms have other ways of squeezing advisors, like raising account minimums so they work only with wealthy clients.

While the firm’s 16,000 financial advisors may not have been in the line of fire, an unclear number of employees at the bank’s giant wealth management group were. Tuesday morning, Morgan Stanley reported total severance costs of $308 million linked to the layoffs, or “employee action,” with $78 million in severance, or 25%, going to wealth management personnel.

It’s not clear how many or what type of employees in wealth management were laid off. The wealth management group reported record net revenues for the three months ending in June of $6.7 billion, compared with $5.7 billion from a year ago.

A Morgan Stanley spokesperson did not respond to a question Tuesday morning about what type of wealth management employees were laid off during the quarter.

One industry executive, who asked not to be named, said that the hiring of administrative assistants at big firms like Morgan Stanley was in question at the moment.

The lion’s share of severance, $207 million, was associated as expected with the bank’s institutional securities group — think bankers and traders — and the remainder went to investment management.

Meanwhile, Morgan Stanley continued to report strength in drawing new assets to the wealth management business, particularly as the firm has focused on clients’ assets that are held away, or in accounts at firms other than Morgan Stanley.

It reported net new assets of $90 billion for the quarter, despite tax withdrawals, and $200 billion for the year to date. The assets came from financial advisors, the firm’s stock plan business, recruiting and ETrade, its self-directed investor business.

Morgan Stanley senior management has been clear that it believes it can add $1 trillion in net new client assets every three years or so and ultimately reach $10 trillion in assets.

“What I really care about and what I get excited about is that this is a real thing,” James Gorman, Morgan Stanley’s CEO, said when asked about the firm’s continued ability to acquired net new client assets in a conference call with analysts Tuesday morning. “This is not something that’s going to stop.”

“We have a lot of wealthy clients, the dividends and interest they got on their accounts, the money they bring in, the migration from the workplace and ETrade accounts,” he said. “It’s the real deal.”

Meanwhile, Gorman confirmed that the board of directors was reviewing three internal candidates to replace him as CEO when he steps down next year but gave no further details or developments about the process.