Michael Simonds departed Morgan Stanley Smith Barney for Merrill Lynch this week. Simonds was a branch manager at MSSB running a complex of three offices that combined generated over $100 million in revenue. He was recently chosen by On Wall Street Magazine as one of the ten best managers of the year.
Now, Mr. Simonds did not walk on water. I'm sure he had his flaws as we all do. But MSSB did entrust him to run one of their biggest complexes in the country. Sarch's Law of Institutional Arrogance: Firms will never admit that they lost somebody good or admit that they hired somebody bad.
The first part of that is illustrated nicely in the
Investment News article which reported Simonds' departure: “Christine Pollack, a spokeswoman for Morgan Stanley Smith Barney, confirmed Mr. Simonds' departure. She said that the firm had ‘no concern' about losing New York area managers to rivals. ‘We have a deep management bench,' she said.”
This depth is being tested: By my count, over twenty branch managers/complex managers have now departed Morgan Stanley Smith Barney to take jobs at competing firms, often for less money and/or responsibility, at least in the short term.
Around the country, managers have been telling me how threats and intimidation now seem to be the modus operandi from MSSB leadership. “Recruit, or else!” they're told. The intimidation has also moved from words to wallet: Quarterly bonuses recently paid to branch managers had an almost unbelievably wide range of $5,000 to $100,000, even among branches that are similar in size.
But wait, the arrogance goes deeper. The firm also recently changed (raised) margin rates to clients without notifying clients or their advisers. They also raised fees and commissions to clients.
My favorite example, though, (remember, I am a headhunter) is MSSB's new policy to pay aggressive recruiting deals to 3rd and 4th quintile advisors from the competition. When the joint venture between Smith Barney and Morgan Stanley closed in 2009, advisers from both sides of the aisle were given retention packages. However, the deals were skewed (understandably) to the biggest producers. These retention deals also did not give any consideration to length of service; though recent recruits had their recruitment deals subtracted from their retention packages, long time employees were not given any additional consideration which rewarded loyalty.
To add insult to that injury: the firm that ignored “average” productivity within its own ranks, regardless of length of service, is aggressively recruiting “average” production from the competition with outsized checks.
Why is this arrogant? Because someone must think that they can change the way clients get charged without any consequences; perhaps clients won't realize the changes or they won't leave anyway. Someone must think that they can replace any manager without any harm to the franchises they ran. Someone must think that they can pay their managers in a seemingly arbitrary manner because managers are interchangeable. Someone must think that recruiting the same level of advisor that you ignored a year ago will not make those ignored advisors leave.
Time will tell.
