Morgan Stanley’s financial advisors previously may have failed to get their management’s message regarding its lack of concern about their attrition. But they would have had a hard time avoiding that theme when James Gorman, the wirehouse’s CEO, and Andy Saperstein, the head of its wealth management unit, addressed an industry conference in New York this week.
“We expect to grow, even if our FA headcount doesn’t grow,” Saperstein told the audience. “In fact, we expect the number of advisors to decline a bit over the next couple years. To be clear, this is by design.”
“While the number of advisors may go down, the number of advisors no longer serves as a way to predict or drive revenue,” he added later in his talk.
In the most recently reported financial quarter, Morgan Stanley’s FA roster grew only slightly to 15,708, gaining no more than 14 additional FAs from the previous quarter and 26 from the same period in 2018, as reported.
In comparison, Morgan Stanley’s advisor productivity figures have climbed steadily in recent years, Saperstein said, displaying a chart that compared $1,100,000 in revenue per advisor in 2018 with $780,000 in 2012.
The productivity numbers reflect Morgan Stanley’s investment in technology and its FAs’ shift to working on teams, Saperstein said.
“Advisors can’t be business developers, client servicers, portfolio managers, financial planners, alternative specialists and lending specialists all at once. Many of our best teams are getting larger with more formal, specialized roles than in the past,” he told the group.
Advisor attrition, Saperstein argued, “gets a disproportionate share of attention relative to its true impact on the business. It’s understandable because it makes for flashy headlines – the industry press, fed largely by recruiters, likes to write about the daily movement of each advisor in a way that exaggerates the impact on the business.”
“The aggregate facts tell a much less dramatic story. We’re at a low in attrition since the Smith Barney acquisition [in 2009] and losses to RIAs are a very small fraction of that number – losses to RIAs are less than 10% of advisor attrition,” he continued.
Saperstein explained how Morgan Stanley has managed to retain assets despite FA departures.
“When we do lose an advisor, we’re very good at retaining the assets; it’s an area where we’ve intensified our efforts and have had terrific results. It’s not unusual for us to retain the majority of clients when an advisor departs, particularly given the fact that there’s a great disruption to the clients when advisers leave the firm,” Saperstein said.
Morgan Stanley has filed at least a dozen lawsuits in federal courts, and others in state courts nationwide, seeking injunctions against defecting FAs to bar them from soliciting clients since the wirehouse exited the Protocol for Broker Recruiting in November 2017. The protocol is an intra-industry pact that lets FAs move between employers and take with them certain client information, provided they comply with the protocol rules.
Relinquishing the hunt to hire new FAs, the firm’s managers are spending less time recruiting and more time “in their offices driving growth, promoting adoption of the new technology, developing trainees and managing risk,” Saperstein said.
Notably, those managers also have more time to “quarterback the process” of helping Morgan Stanley retain assets when FAs defect, Saperstein added.
CEO Gorman, whose talk followed Saperstein's, also left the impression he worries little about FA attrition these days, particularly when compared to the past.
“It’s tempting to focus on numbers of financial advisors. Frankly, I did it for years, and I would be disappointed if we saw the numbers drift below 15,000 in the near term,” Gorman told the audience. But then he added: “The solution isn’t to find more financial advisors with $200,000 in production; rather, it’s adding smart young college students who work with $10 million [in production] teams.”
Saperstein also stressed that the quality rather than the quantity of advisors it retains matters to Morgan Stanley management. That emphasis on quality bolsters allegiance among FAs who remain at Morgan Stanley, Saperstein argued.
“We are focused on maintaining the quality of our advisor base — it helps us to achieve consistently high levels of client service, preserve our brand, manage risk and ensure we’re focusing our resources in areas where they can generate growth,” Saperstein said. “You’d be surprised at how much it drives broader advisor satisfaction and loyalty across our branch network when they know we’re committed to holding a high bar for what it means to be a Morgan Stanley advisor.”