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Merrill, Morgan Talent Drain Needs Response, Expert Says

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The movement out of the wirehouses is continuing in early 2012, experts say, and should put Merrill Lynch (BAC) and Morgan Stanley (MS) on notice, they add.

A former-Morgan Stanley Smith Barney team just moved to LPL Financial in a hybrid-RIA model, LPL Financial (LPLA) said Monday. The three San Diego-based advisors have about $2 million in yearly fees and commissions and some $300 million in assets.

“An LPL-Fidelity combination is very unique. LPL has traditionally not allowed such arrangements,” said Chip Roame, managing director of Tiburon Strategic Advisors, in an interview with AdvisorOne.

Earlier this month, a Merrill Lynch private-banking team with about $1.4 billion in assets joined the independent advisor-owned HighTower in New York. This is the fourth “breakaway” team to move from Merrill to HighTower, a registered investment advisory firm.

According to Reuters, several dozen advisors and more than $10 billion in assets have moved out of Merrill since the start of the year. Merrill Lynch, though, will not confirm this data and says such figures are not accurate.

Chip RoameThe issue, says Roame (left), is more about the importance of “trailblazers” and the broader breakaway-broker trend and less about the specifics. If some have already embraced independence, the question becomes “will many more follow?” asked the consultant. “I tend to think that if Merrill does not respond with better offers, this trend will accelerate.”

Still, he noted, “The firm has about 18,000 FAs, so 50 leaving is about one-third of 1%, not exactly a huge flood out. The firm also has roughly $1.5 trillion assets, so $12 billion is a little more important, at three-fourths of 1%, but again quite small.”

Merrill is taking some steps to make up for departing reps. In February, it introduced more substantial recruiting packages to advisors with rival firms; some may now receive as much as two times their previous year’s fees and commissions in cash after 12 months.

The team of Jose Fernandez and Juan Aleman recently joined Merrill’s San Diego office from Citibank with about $2 million in yearly sales and $260 million in assets. And the duo of Ryan Baker and Stuart Hamm came to Merrill from Morgan Stanley in Florence, Ala., with plans to move over nearly $1.4 million in yearly production and more than $130 billion in assets.

For its part, Morgan Stanley maintains that advisor attrition, particularly in the top two quintiles, “remains near historical lows.”

Morgan Stanley notes that it recently grabbed the Long Reilly Devito Group, which was formerly with Merrill and managing about $385 million, for instance. It also attracted Ilan Segev to its private-wealth management office from Credit Suisse; he’s had yearly sales of $2.2 million and prior assets of about $190 million.


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