Morgan Stanley to ‘Significantly Reduce’ Recruiting of Brokers

  • Firms cut bonuses months ago after Labor Department briefing
  • Now they may maintain that hiring discipline for long term

Morgan Stanley said it will cut back on using recruitment bonuses to poach established financial advisers as a new rule throws the industry’s traditional hiring practices into doubt.

The firm will honor certain existing recruitment deals while it comes up with new policies, Shelley O’Connor and Andy Saperstein, the New York-based bank’s co-heads of wealth management, wrote Tuesday in a memo to employees. Bank of America Corp.’s Merrill Lynch brokerage and UBS Group AG have signaled similar moves.

Last year, the Department of Labor briefed banks that the industry’s typical signing bonuses could run afoul of the agency’s incoming fiduciary rule. Upon joining a new firm, star brokers were often granted awards of more than three times the revenue they generated in the past year, with the bonus structured as a loan that’s forgiven as the employee stayed with the company and hit targets.

The briefing prodded firms including Morgan Stanley and Merrill Lynch to restructure their enticements, and now brokerages are moving to make more permanent changes.

“Going forward, we intend to increase the investments and resources supporting our existing talent and platforms even further and significantly reduce experienced adviser recruiting,” O’Connor and Saperstein wrote.

The Department of Labor is introducing a fiduciary rule that, broadly speaking, says advisers handling retirement accounts must give advice in a client’s best interest and shouldn’t earn more than reasonable compensation. The regulator said in October that hiring incentives risked violating rules because they include sales targets that can pressure brokers to push expensive products on savers.

Read earlier story: Shrinking bonuses slow brokerages’ revolving door

In January, President Donald Trump signed an executive memorandum directing the regulator to review the incoming rule, which gave the industry hope that it may be watered down. Labor Secretary Alexander Acosta wrote Monday in a Wall Street Journal op-ed that the measure will take effect June 9 with no further delay.

The Journal reported earlier Tuesday on Morgan Stanley’s decision.

For years, brokerages derided recruitment deals as a zero-sum game that hurt the industry’s profitability, because major firms mostly traded top brokers among themselves. Still, that didn’t stop companies from recruiting to replenish their ranks when advisers crossed the street.

UBS Chief Financial Officer Kirt Gardner said last month that his firm had also “refocused” on retention instead of recruiting, and that the benefit of handing out fewer signing bonuses would start to appear in the firm’s costs in the fourth quarter of this year.

— With assistance by Cindy Roberts

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