Morgan Stanley “Feels Good” About Its Comp and Recruiting Policies—Saperstein
Morgan Stanley Wealth Management co-head Andy Saperstein on Tuesday defended the firm’s decision to redeploy resources away from recruiting to technology, saying the investments will help existing advisors capture some of the $2 trillion it estimates wealthy clients keep at rival institutions.
He also signaled that Morgan Stanley plans no major compensation changes for brokers, but may expand advisory fees charged to clients.
Saperstein’s comments come as some wirehouse managers and outside recruiters have been betting that Morgan Stanley, UBS Wealth Americas and Merrill Lynch would unfreeze the recruiting halts they have installed over the past two years in an acknowledgement of having pressed too hard on cost containment. Speaking to investors at a financial conference sponsored by Deutsche Bank, Saperstein betrayed no signs of a reversal.
“Recruiting has definitely taken a much lower priority for us, and for most major competitors in the industry, and, quite frankly, that’s a good thing,” he said. “It allows us and management throughout the field to focus on helping existing advisors do new business and adapt to new changes in technology. That is our primary focus, helping our existing advisers do more business.”
Saperstein, who with co-head Shelley O’Connor runs a division that typically fuels more than 40% of its parent bank company’s revenue, did not discuss whether the company’s controversial decision in November to leave the Protocol for Broker Recruiting has helped keep experienced brokers in place as it retrenches. Morgan Stanley has initiated a wave of lawsuits against brokers who contact former clients after moving to new firms in alleged violation of employment contracts and trade-secret policies.
However, the executive nodded toward broker mobility even as he sang the praises of the company’s integrated technology platform for brokers and their customers.
“Every advisor and their clients should have the chance to go to the best platform and whatever organization they think is best for their clients,” he said in response to a question as to whether Morgan Stanley plans any changes in pay structure and recruiting.
A company spokeswoman declined to discuss whether his comment signals a backing-off from the company’s litigation profile.
Saperstein also asserted that the clout Morgan Stanley commands with financial technology providers and the technology-integration head-start from its Smith Barney merger gives brokers and their customers an edge over competitors.
He pointed to BlackRock’s Aladdin risk-management system for institutional investors, which is now being made available to brokers to analyze their customers’ portfolios within and outside the firm. The key, he said, is integrating Aladdin into Morgan Stanley’s “Goal-Planning System” tool that shows assets held away.
“We can tell clients how their assets held away expose them to risks they didn’t even know they had,” Saperstein said. “What’s even more powerful is that the competing advisor couldn’t have identified the risks without comparable technology,…which they don’t currently have and we spent considerable resources building and integrating over the past two years.”
Merrill Lynch and other firms have for years been encouraging brokers to have clients tell them about outside assets, but Saperstein insisted that none is as far advanced as Morgan Stanley.
Asked if the firm’s Aladdin innovation is so useful that it is charging retail customers for advising on outside assets, Saperstein said no but added: “That can change at some point.”
Closing the loop between broker retention, recruiting abstinence and customer asset growth, he said that the new tools will help line the wallets of both the firm and its brokers by attracting more money from their clients.
“Asset consolidation is a key element of our growth strategy, given that our clients hold an estimated $2 trillion of assets away from us,” he said. “We’ve just never given them a good reason to consolidate them with us. Now they have a reason and we can quantify the benefit.”
A spokeswoman at Merrill Lynch, which for years has encouraged brokers to have clients list outside assets through a tool called “My Financial Picture,” did not respond to a request for comment.
Saperstein also said that he does not see many tweaks being made to the firm’s annual broker compensation program. “We don’t see any major changes,” he said. “We’re happy where we are.”
In the short term, Saperstein conceded that the wealth unit may have a tough current quarter. After a very strong start to the year when Morgan Stanley Wealth Management reported a record $1.2 billion profit amid strong customer trading, transactional revenue is facing a “headwind” and fee-based revenue is vulnerable, he said. Fee-based advisory accounts are priced on the last day of the previous quarter, and March 31 was a market “low point, so we have low pricing on fee-based accounts going into this quarter,” Saperstein said.