Time & Attendance
By Staff Report
Jan. 21, 2010
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, said James Gorman, new chief executive at Morgan Stanley & Co.
After a transformational year, turnover at Gorman’s Morgan Stanley Smith Barney in the top two producer quintiles was at a historic low of less than 1 percent in the fourth quarter, the firm revealed in its quarterly earnings Wednesday, January 20.
“We went through a frenetic period as an industry over the last couple of years in terms of deals and dislocation,” Gorman said in response to a question about turnover on Morgan Stanley’s quarterly conference call. “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.”
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 in May, created the largest brokerage firm in the world, with 18,135 representatives as of the end of 2009. In the third quarter, Morgan Stanley had 18,160 representatives. Leading up to the close of the acquisition, both firms saw a notable number of reps depart for other wirehouses—or in some cases, 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. Client assets totaled almost $1.6 trillion, more than doubling from a year ago as a result of the merger, but up just 2 percent from the third quarter, mostly from higher asset prices, according to the firm.
This year and next, consolidation expenses related to the merger will continue to rise, peaking in 2011, Morgan Stanley said. 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.
Gorman 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, Gorman responded, “We’re obviously in the middle of a complex integration program. These items will all come to a head full-year 2011. It’s kind of a two- to three-year program.”
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