With Morgan Stanley's well-publicized technology travails fueling broker dissatisfaction, industry experts say Merrill Lynch's recruiting raids of the firm's top wealth managers is to be expected.
"The industry is brutally Darwinian [and] tries to pick on the one going through the most problems, and Morgan Stanley happens right now to be that one," said Danny Sarch, financial services recruiter at Leitner Sarch Consultants.
Competitors have always poached from one another, but the floundering financial services business has given wirehouses a greater incentive to prey on others, said Mark Elzweig, founder and president of New York-based national executive search firm The Mark Elzweig Company.
Although equities and bonds have performed well, trading volume and investment banking revenues have remained stubbornly soft this year. Several months ago, it was reported that Morgan Stanley was planning to lay off dozens of bond traders and, in some cases, replace them with computers. This changing business environment has elevated the importance of retail brokerage, and its accompanying asset management fees, in the revenue mix.
"Personnel raids between broker firms is quite common practice," Elzweig said. "These guys target each other as a matter of course."
Elzweig says given the current poor health of financial markets, Elzweig says concerted recruitment campaigns such as Merrill Lynch's are to be expected.
The Wall Street Journal on Monday reported that Merrill is providing selected managers with hiring authority with lists of Morgan Stanley advisors for possible recruitment. Merrill reportedly is targeting those who have shorter employment contracts and dangling seven-figure recruiting bonuses. In some cases, managers have worked with external recruiters, sharing data on potential candidates.
The newspaper also reported that recruiters and Merrill managers have significantly increased their calls to Morgan Stanley brokers over the past month.
Given the environment in the industry, Elzweig said such broker recruiting raids are to be expected-especially during tough times.
"If there is an acute and vexing problem at any firm, it's an opportune time for a competitor to recruit advisors," Elzweig said. "But I'm sure that Morgan Stanley is also focusing on looking at Merrill. When brokers from either one of those firms have left, they have traditionally gone from one to the other."
Merrill Lynch's recruitment drive may be in part prompted by the dissatisfaction among Morgan Stanley Smith Barney advisors this summer over the company's new computer system. In August, more than three dozen of the company's advisors told management they plan to quit over what they describe as a multitude of technical problems caused by the firm's new 3D technology, even as they are taking steps to keep their retention bonuses, according to published reports.
Several high-level teams of advisors who manage billions of the firm's client accounts told management that 3D system glitches have produced trading delays, foreign currency transaction problems and inaccurate account statements and bounced checks, according to a Reuters report. The advisor group drafted a letter to Morgan Stanley CEO James Gorman explaining their objections.
Rolled out in early July, MSSB's 3D system manages client money, stores information and looks up research reports and market data. The system rollout has taken longer than expected and been beset by technical problems.
Elzweig said many advisors on the Smith Barney side view the new operating system as a step backward because of its limited technological capabilities.
Other firms have also tried to capitalize on Morgan Stanley's woes. Last week, the firm was stung by the defection of one of its top brokers, Jonathan Madrigano, who switched over to J.P. Morgan Securities on Friday, according to Financial Industry Regulatory Authority records. Madrigano last year managed $2 billion in assets for Morgan Stanley, according to published reports.
Madrigano ranks among the biggest departures from the firm so far this year. At least 178 veteran advisors who managed more than $24 billion in client assets have left Morgan Stanley Wealth Management so far this year, according to Reuters.