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.”