A five-member team of Merrill Lynch advisors based in New York, led by Harvey Kadden and boasting more than $1 billion in assets and $14 million in yearly fees and commissions, recently left the firm to join Morgan Stanley Smith Barney. Several days afterward, Merrill Lynch hired a team in North Texas from Morgan Stanley with about $478 million in assets and $4.4 million in yearly fees and commissions. It also announced more recruits from Wells Fargo and Credit Suisse and the addition of 27 Merrill Edge advisors.
Recruiters say the departure of Kadden and his colleagues, should send a strong warning to Bank of America-Merrill Lynch — either improve the relationship between the bank management and FAs or watch more wealth managers depart. “This is sending a big message to Merrill Lynch,” explained Rick Peterson, head of Rick Peterson & Associates in Houston. “Brokers get it. It’s amazing. My phone is ringing and ringing. This is huge.”
Merrill had 16,722 advisors as of Sept. 30, while Morgan Stanley (MS) had 17,290. As the concentration of assets in the wealth-management industry continues to increase, competition for the top advisors is intensifying, experts say. There is also growing pressure from smaller boutique firms, as well as hefty regulatory and financial issues that broker-dealers — and particularly bank-owned firms — must tackle. Barclays Wealth, for instance, said recently that it recruited six advisors, including one from Merrill Lynch and one from BofA-U.S. Trust; the combined assets under management for these six FAs is $3.3 billion, while their total yearly sales and commissions is $15 million.
BofA-Merrill’s (BAC) head of wealth management, Sallie Krawcheck, was forced out of Bank of America-Merrill Lynch in early September as part of the bank’s reorganization, and this sudden move created some bad feelings, observers say. Historically, advisors “have always been wary about banks,” Peterson said, “because banks pay less and use a salary-and-bonus structure vs. straight [fees and] commissions. This is terrifying to advisors.”
But beyond these compensation concerns, there has also been a long-term cultural divide in broker-banker relations. “Advisors see them as bankers and feel that there is a big disconnect,” Peterson said. In the case of the team led by Kadden, this frustration culminated in the group’s departure.
Other recruiters agree. “This should be looked at as a definitive statement” about BofA-Merrill, said Howard Diamond, managing director of Diamond Consultants, who works for Morgan Stanley and other clients. “It’s created a tremendous ripple in our world as we talk to Merrill Lynch advisors, and they see a big high-power team has made the move.”
Kadden joined MSSB’s midtown Manhattan branch with Mihir Patel, Randy Knopp, Tim Baker and Chris Barber. A member of Merrill’s elite Circle of Champions for the past decade, Kadden was with Merrill Lynch for 30 years. Patel was at Merrill for 10 years, working as advisor for six of those years and being selected as a member of the Circle of Champions for three years. Knopp spent 33 years at Merrill and was a member of the Circle of Champions for eight years.
“We are talking about lifers,” said Peterson, “some of Merrill’s most senior and largest producers … who feel that everything they work for is being undermined.” When advisors get irritated by such issues, they “can leave, walk across the street and say goodbye a few weeks later.”
Advisors, of course, do not take such decisions lightly, especially when they leave some of their retention packages on the table, Diamond adds. “And FAs are savvy. They wouldn’t do this if it didn’t make sense for themselves and their clients,” he said.
Recently, BofA-Merrill said it hired the former-Morgan Stanley team of Jeffrey Dinkins, William McGrath, Peter Ianace, Rohit Mehrotra and Jason Jaynes in Plano, Texas. It also recruited five financial advisors from Credit Suisse and Wells Fargo with a total of about $1.5 billion in assets and $9.3 million in yearly fees and commissions. The reps coming from Wells include Chris Sotus, Mike McCullough and Alex Jarman in Savannah, Ga., who have managed about $257 million in assets and yearly fees and commissions of $1.3 million.
While these announcements show that each of the wirehouses can grab teams from rivals on a regular basis, the latest Merrill recruiting developments do not have the impact of Morgan Stanley’s most recent hiring news, according to Diamond. “Getting a $14-million-production team is a statement,” said Diamond. “To use a baseball analogy, it’s like Morgan Stanley getting Alex Rodriguez. The Morgan Stanley deal is obviously a head turner. It speaks for itself.”
Other recruiters see it a bit differently. “The recruiting of the Plano team is nothing to sneeze at,” said Peterson. “It’s a coup and speaks to the incredible talent of the recruiting manager that hired them.” Nonetheless, says the Houston-based Peterson, Merrill should expect more of its advisors to defect going forward, especially as the terms of their retention packages expire and some conclude that BofA is hurting the Merrill Lynch brand. “This doesn’t change what I said earlier. I am expecting a ton of movement from Bank of America,” he said.