Merrill Lynch, Morgan Stanley top execs say recruiting changes worked

Wall Street's wirehouses, whose financial advisers typically work with the wealthiest clients in the country, are continuing to sharpen their strategies for developing, retaining and recruiting top financial adviser talent.

Driving an overhaul of recruiting at Merrill Lynch & Co., Morgan Stanley & Co., Wells Fargo Advisors and UBS Group a few years ago was the tremendous expense of recruiting experienced financial advisers, those who generate at least $1 million in annual fees and commissions.

At the end of 2017, Morgan Stanley and UBS upended the wealth management industry by withdrawing from an agreement known as the protocol for broker recruiting. The move was a determined effort to hold onto more of their brokers, focus on better technology to build advisers' revenues, and reduce expenses by reining in recruiting bonuses that could cost the firm millions per adviser.

Since then, Merrill Lynch, which remains in the broker recruiting agreement, has also pulled back on recruiting financial advisers and focused on training young advisers through a variety of channels and paying them a salary rather than a percentage of revenues, which benefits the firm.

Meanwhile, Morgan Stanley recently has spent heavily on acquisitions, including the addition of ETrade Financial Corp., adding hundreds of advisers and increasing new client leads in the process.

Bank of America Corp.’s wealth management business, which includes Merrill Lynch, is “focused on developing internal talent rather than paying up for external recruiting, and there is still a lot of client cash sitting on the sidelines, a bullish indicator for markets,” wrote Morgan Stanley's team of banking analysts in a note this morning.

Indeed, both Andy Sieg, president, Merrill Lynch Wealth Management, and James Gorman, CEO of Morgan Stanley, said at an industry conference on Monday that recent additions of financial advisers had vindicated the shift a few years ago from the heavy costs of traditional recruiting.

"We think one of the very distinctive aspects of this franchise is this focus on organic talent development, as well as organic client development," said Sieg, who was speaking Monday morning at Morgan Stanley's virtual U.S. Financials, Payments & CRE Conference. "We have for many years been out of the adviser recruiting game, because we don't think it is a good formula for clients or shareholders, or the firm overall."

Part of that focus is bringing on young, but somewhat experienced, advisers and paying them a salary rather than traditional compensation, Sieg added.

"We see early career advisers that may have started at other firms," Sieg said. "They're licensed and trained. They look a lot like individuals that would be in the later stage of our development program, we'll be hiring some of them and bring them over, but on a salaried program, not a traditional recruiting deal."

During his keynote at the conference, Gorman said that Morgan Stanley's shift in efforts to attract talented financial advisers is paying off, and that the industry should start thinking about the firm's franchise to be more in line with the Charles Schwab Corp., a leading destination for registered investment advisers and a top discount broker.

Net new money flows from clients and the quality of financial advisers have Gorman particularly pleased.

"We are net positive every single week for advisers," Gorman said, referring to the firm’s new brokers. "It’s not because we’re paying souped-up deals. It’s because the platform is working."

The firm used to have a high attrition rate of its advisers and old technology, he said. That's changed, particularly as advisers are seeing client leads from ETrade and the 2019 acquisition of Solium Capital Inc.'s stock plan business.

"I think we’re going to be compared, over the next five years, much more to a certain West Coast, direct player that’s done a phenomenal job, than the traditional wirehouses," Gorman said, clearly referring to Schwab without naming it.