Eager to clamp down on advisers leaving the firm, Morgan Stanley last week announced
it was given a temporary restraining order from a federal judge in New Jersey against a broker who had earlier jumped to an independent broker-dealer. In October, the firm
dumped an industry agreement known as the broker protocol for recruiting, a move perceived by many that the firm was working harder than ever to prevent its brokers from jumping ship.
But the wirehouse, with 15,759 brokers and advisers, is facing stiff competition for those brokers from some of its former employees: one-time executives and managers who left the firm or an antecedent in the past decade who are successfully recruiting brokers from the firm.
Take, for example, the cases of Michael Armstrong, CEO of
RBC Wealth Management, Shirl Penney, CEO of
Dynasty Financial Partners, and James Gold, CEO and a founding partners at
Steward Partners Global Advisory.
Mr. Armstrong worked at Morgan Stanley from 1987 to 2012, holding "several senior leadership positions" at the firm, according to RBC. He joined RBC last year after a stint at another firm. In May, RBC said
it had recruited a Morgan Stanley team with $5.5 billion in assets and offices in Boston and Southern California.
And then there's Mr. Penney, who was director of business development at
Citigroup's Smith Barney unit until the summer of 2008, a few months before Morgan Stanley said it was buying the firm in January 2009 in the fallout from the credit crisis. Mr. Penney then in 2010 opened Dynasty Financial Partners, which in the past five years has moved four teams of Morgan Stanley advisers with $6.4 billion in assets to its independent registered investment adviser platform,
according to data compiled by InvestmentNews.
And finally, take the case of Mr. Gold, a complex and branch manager in Connecticut for Morgan Stanley until he left in 2013. According to industry trade publications, including
InvestmentNews, three Morgan Stanley teams with a combined $1 billion in assets left the wirehouse this year to join Steward Partners.
"The big firms have cut their management to save money, and that's created a diaspora of talent to other firms," said Danny Sarch, an industry recruiter. "With the biggest merger in the industry, Morgan Stanley and Smith Barney had duplicate offices in regions and overlap. For the managers, it was a game of musical chairs, the music stopped, and somebody was left without a chair."
A spokeswoman for Morgan Stanley, Margaret Draper, said the company declined to comment. Mr. Armstrong and Mr. Penney did not return calls.
Mr. Sarch added that Morgan Stanley was not alone among large firms in reducing costs and cutting managers. "It's been a
bear market for management talent in the financial advice industry for years," he said. "That's why so many of them have started their own things."
When Morgan Stanley said it was
buying a majority stake of Smith Barney from Citigroup in January 2009, the two firms had a combined 23,000 registered reps and financial advisers under their roofs. Today, Morgan Stanley has fewer than 16,000 advisers.
At the time, Mr. Gold said the firms had managers at 135 complexes, industry shorthand for a designated geographic area. Now there are 65 complexes left, he said.
"Roughly half have been closed and merged together, and Morgan Stanley continues to do so quietly," Mr. Gold added.
