Almost nine months after leaving the Broker Protocol, the sound of advisors exiting Morgan Stanley and UBS has quieted.
The firms' lower attrition rates — Merrill Lynch has experienced a similar trend — indicates the industry is shifting away from a recruiting landscape juiced by wirehouse activity.
"We're honestly seeing very little attrition," Morgan Stanley CEO James Gorman said during an earnings call Wednesday morning.
The drops in attrition for Morgan Stanley, UBS and Merrill Lynch are particularly notable among top brokers, according to people familiar with the data at those firms and who requested anonymity in order to discuss it. The retention rate at UBS among elite brokers has improved more than expected, a person familiar with the matter said.
Hiring announcements by competitor firms poaching talent back them up.
The number of such announcements regarding advisors leaving Morgan Stanley and UBS during the first six months of this year are lower than the same period a year ago, according to hiring announcements and FINRA BrokerCheck data analyzed by On Wall Street.
Morgan Stanley lost at least 20 brokers managing about $1.3 billion while UBS lost at least 35 advisors overseeing $2.1 billion, according to the data.
Last year, the wirehouses' competitors said they recruited at least 63 Morgan Stanley brokers managing nearly $13 billion and at least 50 UBS advisors managing roughly $21 billion.
These numbers do not include advisors who may have retired or taken jobs outside the industry and they also likely understate the number of advisor moves and their AUM, given not all firms make hiring announcements.
Some brokers and their new employers may have additional reason to downplay their career moves given that Morgan Stanley filed several lawsuits earlier this year to block departing advisors from contacting their clients.
Still, official head count figures suggest brokers aren't leaving Morgan Stanley in droves. The wirehouse, which reported earnings Wednesday, said that its brokerage ranks declined by 50 advisors to reach 15,632 as of June 30. Head count was down by 145 year-over-year. That net loss includes advisor retirements and others leaving the profession.
One possible explanation some industry insiders point to: Advisors planning to make a career change in 2018 saw those plans upended when the two firms declared their intention to exit the Broker Protocol in late 2017. In fact, about 90 advisors overseeing more than $12.3 billion quit Morgan Stanley and UBS immediately following the two firms' announcements.
"I think they compressed a lot of what would have happened in the first quarter of 2018 into the fourth quarter of 2017," says Danny Sarch, president of recruiting firm Leitner Sarch Consultants in White Plains, New York.
Given the potential lawsuit threat, leaving may require more preparation in 2018 than it did in 2017.
”Now any movement is people starting over and taking their time,” Sarch adds.
However, Morgan Stanley and UBS aren't the only wirehouses to experience a drop in advisor exits. Merrill Lynch reported this week that the firm’s FA ranks, at 14,820, were down by only nine brokers from the previous quarter.
Unlike Morgan and UBS, Merrill Lynch remains in the Broker Protocol as does Wells Fargo.
And while advisor departures from UBS and Morgan Stanley may have dropped, broker exits from Wells Fargo have increased as the company deals with fallout from several banking scandals and heightened regulatory scrutiny.
Wells Fargo's advisor ranks shrank by 173 from the prior quarter to land at 14,226, the company reported last week. Head count was down by 301 year-over-year.
Some industry observers say a more likely explanation for lower attrition levels is that there is less recruiting competition. Merrill, Morgan and UBS ― three of the biggest firms in wealth management ― have all dramatically cut back on hiring efforts over the past 18 months. (UBS was the first to announce recruiting cuts in June 2016; Merrill and Morgan followed suit last year.)
"There's less of a buyer's market," says Tom Lewis, an attorney who represents advisors.
Until about a year-and-a-half ago, recruiting deals sometimes topped 400% of an advisor's 12-month trailing production, according to Lewis, an attorney at Stevens & Lee, a law firm in Lawrenceville, New Jersey.
"A big portion was upfront and the backend was achievable, something that advisors felt they could make. One of the reasons you saw these deals is that there was a lot of competition for financial advisors," Lewis says. "Those deals are not on the table anymore."
Gorman, Morgan Stanley's CEO, noted something similar.
"I've watched this for 25 years," he said during his firm's earnings call. "The fundamental shift was the consolidation of firms. So instead of recruiting against ten firms ― Dean Witter, Shearson, Smith Barney ― we now own those firms. You now effectively own the group that you recruited against."
"Now there are four [wirehouse] firms, and the amount of recruiting between them has gotten pretty small," he continued.
Gorman acknowledged that opening up an independent shop would still be appealing for a select group of advisors. But having access to a big firm's resources ― namely its brand, platform, intellectual capital, technology and compliance ― would still be more appealing to most advisors, he said.
To be sure, regional BDs continue to aggressively court wirehouse advisors. For instance, Janney Montgomery Scott recruited 19 experienced financial advisors overseeing more than $3.1 billion in client assets during the second quarter, according to the firm. Benjamin F. Edwards, Stifel, Raymond James and RBC have also kept up recruiting efforts.
However, many of those regional firms' new hires have come at Wells Fargo's expense.
Of the 133 wirehouse advisors who this year jumped to smaller regional firms, about 60% came from Wells Fargo, according to hiring announcements data analyzed by On Wall Street. That is nearly double the percentage for the first six months of 2017, when Wells Fargo brokers comprised 33% of the 126 wirehouse advisors moving to regional firms.
At the same time, the firms have tried to make changes to improve advisor happiness through policy changes and technology upgrades (the former has sometimes had mixed results, as some brokers were upset at their firm exiting the protocol).
A UBS advisor generating more than $3 million in annual revenue says the Swiss firm has made its preference for HNW and UHNW advisors clear to him, shifting resources towards its biggest and fastest growing teams.
"They can't do enough for me," says the advisor, who asked not to be named.
All the energy is on that side of the business, he says.
"If you're doing $500,000 in Des Moines, Iowa, then you can read the writing on the wall," he says.
Indeed, those advisors who have left Morgan Stanley and UBS this year managed fewer assets than the average wirehouse broker. UBS, for example, reported its average advisor managed $180 million for the first quarter (the firm reports second-quarter earnings later this month). Advisors who left UBS this year managed $107 million on average, per hiring announcements data analyzed by On Wall Street.
The firm's executives have noted a similar trend, according to a person familiar with the matter who asked not to be named.
But, given the industry's aging broker force, some recruiters question if today's trends will hold into the future. Should training programs fail to fill the seats of retiring brokers and should Wells Fargo recover its recruiting game, then the other wirehouses might find cause again to ramp up their own hiring efforts.
Until then, advisors may have to get used to a dramatically different recruiting environment.
"The whole face of the market has changed compared to 20 years ago," Gorman said.