Bank of America Corp. (BAC) and Morgan Stanley (MS), which own the largest brokerage firms in the world, are declaring a cease-fire when it comes to using big bonuses to keep their own brokers and lure each other's brokers away. Bank of America Corp. owns Merrill Lynch (MER).
After payments tied to Bank of America’s purchase of Merill Lynch expire in approximately two years, new retention bonuses will no longer be offered to the latter’s lead performers. Also, Morgan Stanley’s chief executive James Gorman has said that with brokers seeking to switch firms less often, compensation costs could fall.
A decline in recruiting could push up broker-dealer profits, which has been held back because of the fight between firms for the leading advisers. Some brokers have even been offered multiple times their yearly salary to move and bring their client roster with them.
Already, Morgan Stanley, the largest broker-dealer with 16,500 financial advisers, paid out 57% of revenue from wealth management as compensation during this year’s third quarter, which is a decrease from the 63% of revenue a year ago. As for Merrill Lynch, a spokesperson for the firm says that in this past quarter since the end of 2010 it has lost the least amount of financial advisers to competitors.
Meantime, UBS (UBS), which has been in the headlines a lot lately over the Puerto Rico bond funds crisis, is reportedly not doing as much recruiting as it did under previous management. During this year’s second quarter, the firm spent $171 million—9.5% of its operating income during that time on recruiting bonuses.
Last month, the Financial Industry Regulatory Authority voted to mandate that brokers reveal how much they were paid to defect to another firm. The plan was supported by Merrill Lynch and Morgan Stanley. However, Stifel Financial Corp. (SF) wrote the SRO to say that the proposal was anti-competitive and would give brokers less incentive to change firms even when this was in the best interest of their customers.
However, broker-dealers are still recruiting from one another to hire financial advisers to take the place of retired brokers. Some of the candidates are being offered six times their take-home salary. One reason for this is that internal training programs are reportedly not producing enough successful brokers.
It is important that as they recruit new financial advisers, brokerage firms continue to properly train and supervise them while ensuring the proper procedures and systems are in place to decrease the chances of brokerage fraud. Unfortunately, some financial advisers who are negligent merely carry on with their misconduct at the firms that they move to, leaving more investor victims in their wake.
You want to work with a securities fraud law firm that knows how to help you recover your losses from stockbroker fraud.
Morgan Stanley Joins BofA in Broker-Recruiting Truce, Bloomberg, October 24, 2013
Analysis: Broker bonus bidding war comes at a cost, Reuters, April 10, 2012
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