The battle for brokers, which led scores of reps to hop from one wirehouse to another in early 2009, came to a grinding halt at end of the year — a development that could last for years, according to James Gorman, new chief executive at Morgan Stanley & Co.
After a transformational year, turnover at Mr. Gorman’s Morgan Stanley Smith Barney in the top two producer quintiles was at an historic low of under 1% in the fourth quarter, the firm revealed in its quarterly earnings today.
“We went through a frenetic period as an industry over the last couple of years in terms of deals and dislocation,” Mr. Gorman said in response to a question about turnover on Morgan Stanley’s quarterly conference call today. “I truly believe the industry is moving toward a more rational recruiting model.”
“The lower turnover is for real,” he added. “For the next couple of years it should stay low and relatively stable.”
Mr. Gorman’s remarks, and Morgan Stanley’s report of lower broker turnover, came on the same day that
Bank of America also revealed that headcount in its 15,000-broker Merrill Lynch Global Wealth Management group also stabilized.
Morgan Stanley’s purchase of Smith Barney, which closed last May, created the largest brokerage firm in the world, with 18,135 representatives as of the end of last year. In the third quarter, Morgan Stanley had 18,160 representatives. Leading up to the close of the acquisition, both firms saw a notable amount of reps depart for other wirehouses,or in some case regional and independent advisory firms.
With attrition stabilizing in the fourth quarter at Morgan Stanley, each rep brought in $692,000 in revenue, on an annualized basis. Total client assets totaled almost $1.6 trillion, more than doubling from a year ago as a result of the merger, but up just 2% from the third quarter, mostly from higher asset prices, according to the firm.
The bulk of client assets came from clients with more than $1 million in assets.
Asset outflows for the quarter totaled $4.7 billion, an improvement of 36% over the same quarter last year, and 47% better than the third quarter.
Overall, the global wealth management group brought in revenue of $3.1 billion, compared with $1.3 billion a year ago. Profit from continuing operations was $231 million, compared with a loss of $51 million in the fourth quarter of last year.
Expenses increased along with revenue and profit, the firm said. Non-interest expenses totaled $2.9 billion, compared with $1.3 billion in the fourth quarter of last year. The bulk of the cost, at $2 billion, was compensation expense. Morgan Stanley incurred $221 million in closing costs from the merger, mostly related to financial advisor replacement awards.
This year and next,
consolidation expenses related to the merger will continue to rise, peaking in 2011, Morgan Stanley said. Mr. Gorman took over from John Mack earlier this month. He has a background in wealth management at Merrill Lynch & Co. Inc. and Morgan Stanley, whereas his predecessor had an investment banking background.
Mr. Gorman said he expects costs of $450 million this year, due to the rationalization of real estate and information technology following the merger.
In response to a question from an analyst on dealing with these costs, Mr. Gorman responded, “We’re obviously in the middle of a complex integration program. These items will all come to ahead full year 2011. It’s kind of a two to three year program.”
And, in response to another question on costs, Mr. Gorman said, “The good news is the very significant outflows, which we predicted would decline dramatically, did decline dramatically.”
Overall at Morgan Stanley, profit from continuing operations was $413 million, or 14 cents a share, compared with a loss of $10.5 billion, or $10.92 a share, a year earlier. The per-share profit missed the mean analyst estimate, according to Bloomberg. Analysts surveyed by Bloomberg expected per-share profit of 42 cents.
