Morgan Stanley, UBS Chip Away at Multi-Billion Recruiting Loan Balances
Morgan Stanley Wealth Management and UBS Financial Services are slowly whittling away at the billions of dollars they owe to their brokers.
Loans given to “retain and recruit certain employees” in Morgan Stanley’s Wealth Management business totaled $4.715 billion at the end of last year, down around 4% from $4.923 billion at the end of the 2015 when Morgan Stanley last reported the figure. That equates to around $299,000 per broker if measured across Morgan Stanley’s brokerage force of 15,763.
UBS Wealth Management Americas, the other wirehouse firm that discloses the loan figure, reported $3.033 billion in “recruitment loans to financial advisors,” down around 5% from $3.179 billion in 2015, according to the firm’s fourth-quarter earnings report. The $3.033 billion averages around $432,000 across the firm’s 7,025 brokers. The loans had been on the rise until mid-2016 when UBS clipped its recruiting budget 40%.
At Morgan Stanley, the loans, which are issued as promissory notes and have terms of one to 12 years, had been falling by about $200 million each year as the notes are amortized or forgiven, according to previous filings. The firm had $5.130 billion loans outstanding in 2014 and $5.487 billion as of 2013. The amount is falling in part as retention loans issued during the 2009 acquisition of Smith Barney are forgiven (they will have been fully amortized by the end of this year).
A Morgan Stanley spokeswoman declined to comment. A UBS spokeswoman did not return a request for comment.
But even as the totals appear to be falling across the board, the multi-billion dollar sums are a testament to the power that recruiting loans still hold and how much they weigh on the books of the parent company.
Merrill Lynch, which does not disclose a total figure for recruiting and retention loans to its 14,600 brokers, said that it was saving around $400 million per year, or $100 million a quarter, after retention loans given out during the 2009 acquisition by Bank of America expired at the end of 2015.
The recruiting loan figures are likely to continue to drop as the offers come under attack from regulators such as the Department of Labor, which in October effectively prohibited offering so-called back-end or deferred recruiting bonuses tied to retirement assets. Big brokerage firms have since dropped retirement assets from calculations for recruiting loans, which has lowered the bonuses as much as a third for some brokers.