Morgan Stanley Chairman & CEO James Gorman says the industry is now through the mayhem of the financial crisis that led many brokers to switch firms. Plus, with consolidation in the industry, there are fewer firms for advisors to jump to.
If “you look at where the industry, the wealth management industry now is, it’s very concentrated. And during the period of turmoil of the crisis, post-crisis and then our acquisition of Smith Barney … there was a lot of attrition, a lot of moving people between different firms,” Gorman explained on a recent call with analysts.
That is the tax on the industry obviously, and it’s inconvenient for clients in many cases,” Gorman said. “But that level of turnover has dropped significantly, and we expect it to continue to drop. So that reduces your overall compensation costs, because obviously recruiting deals can be very expensive.”
In related news, UBS Group CEO Sergio Ermotti says the proposed disclosure of upfront payments paid to advisors who switch broker-dealers should reduce turnover. The transparency, he said on a call, “is going to clearly prevent or slow down the amount of people, the turnover of financial advisors, in the industry.”
Over time, this means that firms will see “a beneficial effect on compensation,” Ermotti added. “But this is not something that you will see on a quarter-by-quarter basis. It’s going to take time [and] it’s clearly a good news in respect of improving the economics of the difference.”
Gorman discussed advisor-turnover issues after Morgan Stanley said its third-quarter earnings from continuing operations nearly doubled to $1.01 billion vs. $560 million. Revenue grew about 7% to $8.1 billion from the year-ago period, excluding debt value adjustments.
Wealth management operations at the investment bank, which account for 43% of total sales, grew 8% year over year to almost $3.5 billion. And the unit’s net income jumped to $430 million, a 32% gain over last quarter and nearly double the year-ago period’s results.
The number of advisors at Morgan Stanley grew 1% to 16,517 in the third quarter from 16,321 on June 30 and 16,378 a year ago. Its advisors had trailing-12-month production of $848,000 on average, down 2% from the prior quarter but up 8% from last year. Total client assets were $1.83 trillion.
Meanwhile, Bank of America said its third-quarter net income rose to $2.5 billion, a jump of more than 600% from last year’s $340 million. Its Global Wealth and Investment Management unit had revenue of $4.4 billion, up 8% from last year but 2% off last quarter’s results. Asset flows were $9.7 billion, a nearly 80% year-over-year growth rate.
Total GWIM client balances were $2.28 trillion, of which $1.85 trillion were held in Merrill accounts. Merrill Lynch revenues were $3.6 billion, up close to 7% over last year but down nearly 3% from Q2.