Morgan Stanley's brokerage unit must keep compensation costs high to retain top financial advisers because the business is “checkmated” by
UBS AG and
Bank of America Corp., which are looking to poach employees, said Brad Hintz, an analyst at Sanford C. Bernstein & Co.
Morgan Stanley Chief Executive Officer James Gorman can't cut expenses at the joint venture with
Citigroup Inc.'s Smith Barney as fast as he would like because “he's being checkmated by Sallie Krawcheck and Bob McCann,” Hintz said today in an interview with Tom Keene on Bloomberg Radio's Bloomberg Surveillance.
Krawcheck, 46, leads
Bank of America's wealth-management unit and McCann, 53, is head of
UBS's U.S. brokerage. “Both of them have bids in the market for his brokers, so if you come in and are heartless on the integration, the retail brokers will raise their hand and hit the bid, and he'll end up with fewer brokers,” Hintz said.
Compensation costs at Morgan Stanley's wealth management unit, which includes Morgan Stanley Smith Barney, were 62 percent of revenue at the New York-based company in 2010, down from 65 percent in 2009. The ratio compared with 43 percent in the firm's investment bank and 41 percent in its asset- management division.
Profit Goal
Hintz said investors and analysts have been disappointed by the speed of the Morgan Stanley Smith Barney integration. The unit posted a pretax margin of 9 percent in 2010, less than half Gorman's goal of more than 20 percent. Bank of America's wealth and investment management division, which includes its Merrill Lynch brokerage and U.S. Trust, had a margin of about 15 percent.
Morgan Stanley paid $2.75 billion in 2009 to gain a controlling stake in the joint venture with Smith Barney, giving it the world's biggest brokerage with 17,800 financial advisers and $1.72 trillion in client assets at the end of the first quarter. Morgan Stanley has the option to buy the rest of Citigroup's stake by 2014.
Gorman, 52, placed his former Merrill Lynch & Co. colleague Greg Fleming in charge of the brokerage unit earlier this year. Gorman said in February the firm is focused on keeping attrition among its top 40 percent of advisers under 5 percent.
Bank of America more than tripled the size of its wealth- management business with its 2009 purchase of Merrill Lynch. The unit had 15,695 advisers at the end of the first quarter, when Merrill Lynch had $1.55 trillion in client assets.
McCann who previously led the Merrill Lynch brokerage, was hired by UBS in 2009 to turn around its U.S. wealth-management unit, which had 6,811 financial advisers and 750 billion Swiss francs ($850 billion) of client assets as of March 31. He said at the time of his hiring that UBS wouldn't be the “high bid” in the market for financial advisers.
--Bloomberg News--
