Morgan Stanley hard hit by broker defections

Morgan Stanley Wealth Management, the nation's largest brokerage by adviser head count, lost $8.4 billion in client assets during the third quarter as some of its major producers took their business to competing firms. In the three-month period ended Sept. 30, the average assets under management of advisers who moved also jumped nearly 25% from the previous year to $402.2 million, according to preliminary data from InvestmentNews' Advisers on the Move database. The IN database on adviser movement is not exhaustive, as firms report only a portion of the advisers they recruit and do not disclose advisers who leave. Generally speaking, the moves of advisers with small books of businesses are not tracked by the database, and advisers do not necessarily take all of their business to the new firm. But the data indicate continued recruiting challenges for Morgan Stanley, which completed its acquisition of Citigroup Inc.'s Smith Barney unit this year. Morgan's wealth management division lost a net 11 adviser teams in the third quarter, the most of any top firm tracked by IN. Four of the 10 largest departures from Morgan Stanley in the third quarter were to other wirehouses. Three teams managing $7.9 billion in assets moved to UBS Financial Services Inc., while a $1 billion team in the New York area switched to Wells Fargo Advisors LLC. Morgan Stanley had 16,321 advisers and $1.8 trillion in assets at the end of the second quarter, according to the company's regulatory filings, making it the largest wirehouse by advisers and the second-largest by assets. “In my case, it was a personal choice,” said Elaina S. Spilove, who oversaw $2.5 billion in assets at Morgan before moving to UBS. “I'd rather be one of 7,000 than one of 17,000.” Christine Jockle, a spokeswoman for Morgan Stanley Wealth Management, said the firm's attrition is at a near-historic low and average revenue at an all-time high. She said the IN data do not include the number of advisers who joined the firm, but she did not want to disclose the data publicly. She declined to elaborate on how the firm calculates attrition or to provide an overall number of unreported assets that have come into the firm. Morgan did add some major advisers last quarter. Robert Finan and Anthony LaFonte, who managed $400 million, left Bank of America Merrill Lynch to join the firm in Red Bank, N.J., and Scott Siegel moved his New York-based SKOC team, which managed $1.5 billion, from J.P. Morgan Securities LLC. But high-profile losses, particularly $4.8 billion adviser John F. Rasweiler's moving to UBS in Florham Park, N.J., appeared to offset Morgan's recruitment successes last quarter. “They are a firm under siege,” said Danny Sarch, an industry recruiter who has been critical of Morgan Stanley. “The smaller non-wirehouses have preyed on them very successfully.” Robert Alpert moved his namesake firm, which includes three other advisers, to a Woodbury, N.Y., branch of Wells Fargo Advisors last week after being affiliated with Morgan Stanley since its 2009 merger with his previous firm, Smith Barney.

Burden for clients

He said Morgan's increased fees were a burden for his smaller and midsize clients. “We felt that, philosophically, the client was not being put first,” Mr. Alpert said. In a statement, Ms. Jockle said Morgan Stanley's former advisers, “who always forget to mention the big checks they took to leave,” put their spin on events. Morgan Stanley on Oct. 18 will announce its third-quarter earnings, which will give a broader picture of its overall recruitment levels. Bank of America Merrill Lynch, the nation's largest wirehouse by assets, gained seven large teams last quarter, but the size of the four teams who left in the same quarter caused a net loss of $555 million in client assets, according to the data.