Morgan Stanley’s move to institute a second round of firings this year is being praised by industry consultants and recruiters as a step that makes sense for the brokerage group, though it certainly will cause some pain and suffering in the advisor population.
“It seems like a savvy well-thought-out strategy to refine its FA base to only those able to generate profitable revenues within some reasonable time period,” said Chip Roame (left), head of Tiburon Strategic Advisors in California, in an interview with AdvisorOne.
“Its FA base is huge, so it likely can use some trimming,” Roame continued. “If 300 job cuts are made out of a total headcount of 17,800 advisors, this represents a cut of less than 2% – which is minor.”
After letting several hundred underperforming reps go in March, Morgan Stanley’s CFO Ruth Porat said last week that it would likely continue to trim weaker brokers and could go below the 17,500 FA mark.
Morgan Stanley currently tops the wirehouse advisor charts in terms of the number of advisors. Merrill Lynch, for instance, has about 15,700. Both firms have more the $1.5 trillion in assets under management, or about $98 million in AUM per advisor.
However, Merrill’s advisors have an average yearly fees and commissions, or production, of $931,000 vs. $767,000 per Morgan Stanley FA.
Morgan Stanley’s revenue bars of $25,000 after three years and $75,000 after five years “are reasonable (vs. the firm’s average of $767,000),” explained Roame. “I'd assume an FA who does not hit those figures would always underperform the average, so it’s logical – if the firm’s goal is to maintain or boost the average.”
And Morgan Stanley may not be the only wirehouse that will resort to trimming advisors in 2011 and other aggressive moves to boost sales and overall financial results, other experts say.
“Morgan Stanley probably moved first on cutting lower-end producers, because it is under pressure to both raise its stock price and realize the pre-tax margins and cost savings that James Gorman promised as a result of the merger with Smith Barney,” said Mark Elzweig (left), head of a New York-based executive-search firm, in an interview. “Then, of course, there's the matter of catching up to Merrill Lynch's higher productivity per broker as measured both in client AUM and gross commissions.”