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Morgan Stanley Wants Its Brokers to Act Like Regular Employees, Say Headhunters

By Thomas Coyle February 1, 2018

In leaving the Protocol for Broker Recruiting and aggressively pursuing temporary restraining orders against recently departed advisors, Morgan Stanley is acting on a long-term plan to reduce costs in its wealth management unit while asserting ownership over more client accounts, according to industry watchers.

And they say the Wall Street giant is likely to take more action this year to further those goals, specifically around reducing compensation.

Morgan Stanley’s recent moves in its retail-brokerage division -- abandoning the Protocol, a longstanding agreement governing orderly FA recruiting; increasing deferred-compensation levels; and taking out TROs against leavers -- stem directly from Morgan Stanley CEO James Gorman’s stated aim of "corralling costs and improving the company’s bottom line," says advisor headhunter Ron Edde of Millennium Career Advisors in the Greater San Diego area.

Through much of the past decade, adds Edde, "Gorman and his entourage" have seen FA recruiting packages "ballooning" as big brokerages, their reputations tarnished by the financial crisis of 2008, paid big money to stem outflows by attracting experienced advisors.

Though major brokerages have put the brakes on outsized signing incentives for the past year at least, it wasn’t long ago a top wirehouse producer could hope for a bonus of three times trailing sales for switching firms -- a state of affairs that made wirehouse-based "bean counters’ heads explode," says Edde.

"In reaction to that," Morgan Stanley is unfolding, in stages, "a well-planned project," Edde contends. "Part one was withdrawal from the Protocol. Part two, the next step, is to reduce pay."

Morgan Stanley’s "ultimate goal" -- and that perhaps of UBS Financial, another wirehouse that has left the Protocol -- is for the next generation of financial advisors at Morgan Stanley to view themselves more as private bankers, with private bankers' view of client relationships as house property and with private bankers' more modest expectations around recruitment incentives and bonuses.

Morgan Stanley itself takes a different view of recent developments. Ditching the Protocol and getting off the big-bonus treadmill lets the firm "invest more heavily in its world-class advisors and their teams, helping drive additional growth opportunities," a Morgan Stanley spokeswoman writes in an email to FA-IQ.

As for Morgan Stanley’s seemingly aggressive use of TROs -- the firm has won four such judgments in recent weeks -- the spokeswoman will only reiterate previous comments: that the firm "expects all former employees to comply with their legal and contractual obligations."

Danny Sarch, an advisor recruiter at Leitner Sarch Consultants in White Plains, N.Y., agrees with several of Edde’s points.

Sarch shares the view that Morgan Stanley’s recent moves are part of "a deliberate strategy." The firm has "been watching net losses exceed net gains for several years," as more money directed by seasoned FAs departs than arrives. "Put yourself in their shoes."

As Morgan Stanley loses ground in a recruiting tug-of-war with the RIA channel and regional players like Raymond James and RBC Wealth Management, how much use for the Protocol is it going to have, asks Sarch.

James Gorman (Getty)

Better in this environment, Sarch suggests, to concentrate on forging a new firm-advisor relationship by making it harder to leave -- especially if you expect to take clients with you.

Morgan Stanley is emboldened by an advisor force with an average age in the mid-fifties, says Sarch. Setting aside the many wirehouse FAs with no desire to work elsewhere, roadblocks to a smooth and relatively inexpensive departure -- such as dropping the Protocol and securing TROs -- are likely to keep in place many would-be jumpers who are closing in on retirement.

And when these lifers retire, their books get handed to younger FAs on the explicit understanding such accounts belong to the firm, now and forever.

From the consumer’s perspective, "It’ll be like McDonald’s, where you don’t know if you’re in a franchise or a restaurant belonging to the company itself," says Sarch.

But Sarch doesn’t think it’s going all the wirehouses’ way. "For all you hear about TROs, I wonder how many are getting out under the radar," says Sarch.

Edde wonders about that too. "The tide could turn," he says. "You could start seeing advisors making their way out of Morgan Stanley successfully."

Adds Edde: "And as they start to succeed, you can bet other attorneys will start using the exact same methods" to spring more advisors from jobs they’d rather not keep.

Meanwhile, both recruiters say they expect Morgan Stanley to increase their FAs’ deferred pay -- already at 15% for some, according to Sarch -- and otherwise tweak compensation in favor of time-servers.