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Practice Management > Compensation and Fees

$1B Merrill Team in New York Jumps to Morgan Stanley

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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, joined Morgan Stanley Smith Barney on Tuesday.

This development, says one recruiter, should send a strong warning to Bank of America-Merrill Lyncheither improve the relationship between the bank management and FAs or watch more wealth managers depart.  

“This is sending a big message to Merrill Lynch,” which includes about 16,722 advisors, said Rick Peterson, head of Rick Peterson & Associates in Houston, in an interview with AdvisorOne. “Brokers get it. It’s amazing. My phone is ringing and ringing. This is huge.”

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 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 (MS) 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 is joining MSSB’s midtown Manhattan branch with Mihir Patel, Randy Knopp, Tim Baker and Chris Barber. The team now reports to complex manager Ben Firestein, according to Morgan Stanley Smith Barney, which has about 17,290 FAs.

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.”

According to the recruiter, Kadden and some of the other team members met with BofA management following Sallie Krawcheck’s departure in early September. “The tone of the meeting was very confrontational,” said Peterson.

Rather than being placated by management, as some Merrill advisors had been in the past, the advisors confronted “a breakdown in communication and/or a lack of interest,” explained Peterson. “And when advisors get irritated they can leave, walk across the street and say good-bye a few weeks later.”  

“They thought the time was right,” shared Diamond. “Some things happened at Merrill Lynch, the straw broke with Krawcheck’s dismissal, and the advisors elected to make a move. It is reverberating throughout the FA population at Merrill and is certainly on the minds of Merrill folks right now.”

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.

For its part, Merrill Lynch said Wednesday that it hired a team in North Texas from Morgan Stanley with about $478 million in assets and $4.4 million in yearly fees and commissions. 

The team of Jeffrey Dinkins, William McGrath, Peter Ianace, Rohit Mehrotra, and Jason Jaynes joined Merrill’s office in Plano, Texas, according to a spokesperson.

Also on Wednesday, ex-Wells Fargo (WFC) advisor Leonard Kinsman joined Merrill’s Staten Island, N.Y., office. He manages about $112.5 million and has yearly production of about $1.4 million.

While these announcements show that the wirehouses do take teams from each other 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.


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