March 1, 2021
Morgan Stanley Wealth Management’s loan balance rose for the first time in eight years last year, as a sign of the costs associated with the revitalized appetite for recruitment, according to the company’s annual report filed Friday.
The wirehouse had outstanding employee loans of $ 3.24 billion, up 8.7% from $ 2.98 billion in late 2019. This represents a decrease of 13% in 2019 and, after a review of previous filings, follows a sequential decrease every year since 2012.
The reversal comes when Morgan Stanley, the largest wirehouse by number, stepped up its recruiting efforts last year and focused on high-producing teams of its wirehouse competitors after retiring from expensive practice in 2017. The company’s offers can be three times as much as a broker’s turnover after twelve months, including back-end offers for top teams up front and a payback over a period of nine to twelve years, the recruiters have already said.
“You’re back in the game,” said Michael King, a New York-based consultant recruiter who has hired consultants at Morgan Stanley. “They were very competitive in terms of their offerings.”
Morgan Stanley’s annual report failed to identify the reason for the increase in loans, which it said was “granted in conjunction with a program designed primarily to recruit certain wealth management professionals.” A Morgan Stanley spokeswoman declined to comment.
The average loan term increased from 4.8 years in 2019 to 5.3 years.
Morgan Stanley ended 2020 with 15,950 consultants – 482 more than 12 months earlier and 481 more than at the end of the third quarter. While the takeover of the discount broker added more than 200 call center-based E * Trade advisors, the wirehouse was also manned by a few mega-teams, including a $ 14 million UBS group in Florida that supposedly had negotiated an offer to sign for $ 35. $ 40 million.
James Gorman, Chief Executive of Morgan Stanley, has long wondered about high dollar recruitment practices and stated in July 2018 that it was “much better economically” to focus on growing existing salespeople internally.
The company seems comfortable reopening its wallet, however, as it emphasized its focus on “net recruiting” over the past year. A number that CFO Jon Pruzan called “a really important metric” in September.
The increase at Morgan Stanley contrasts with a 9% year-over-year decrease at its wirehouse competitor UBS Wealth Management USA, which has continued to decline loan balance recruitment as hiring and broker recruitment log has also decreased was withdrawn in 2017.
UBS, which has fewer than 6,000 brokers in the U.S. compared with nearly 16,000 at Morgan Stanley, had recruiting loans of $ 1.87 billion to outstanding financial advisors, up from $ 2.05 billion last year as of the Fourth quarter earnings report emerges.
UBS also re-entered the recruiting battle for seasoned brokers last year, despite focusing on many nontraditional competitors, including bank brokers and private bankers, who sources can be cheaper. Many of his deals have been structured as guaranteed salaries rather than forgivable loans, which could also contribute to the decline, recruiters said.
Competing wirehouses, Merrill Lynch and Wells Fargo Advisors, owned by Bank of America and Wells Fargo & Co., do not share forgivable credit balances in their regulatory reports.
Merrill has held onto its own 2017 hiring freeze and has largely refrained from hiring seasoned brokers as it instead focuses on pulling the business out of its existing roster of consultants and attracting new talent.
Wells Fargo Advisors has paid for some of the highest bids on Wall Street with deals that can hit 340% of trailing 12 production for brokers meeting asset transfer and growth goals.
The competitive hiring environment has also had an impact on “regional” brokerage firms, which have also increased their offerings. Raymond James & Associates said last week that they closed deals and dropped some clawback provisions to compete with higher bids from competitors.