Morgan Stanley’s Saperstein: FA Numbers to Decline “by Design”
(Adds CEO Gorman’s comment that he does not want advisor count to fall below 15,000 in the near term.)
The head of Morgan Stanley Wealth Management said Tuesday that his division will likely winnow its force of 15,700 financial advisors “over the next couple of years” because it has been able to grow customer assets and revenue through improved retention of top-level advisors and their wealthy clients while cutting expensive recruiting.“We expect to grow even if our FA headcount doesn’t grow,” Andy Saperstein told investors at the firm’s U.S. Financials Conference in New York. “In fact, we expect the number of FAs to decline a bit over the next couple of years. To be clear, this is by design.”
The number of million-dollar brokers who left to competitors from November 2017, when Morgan Stanley exited the Protocol for Broker Recruiting, through the end of April 2019 declined by 50% from the average who left in the 2013-2017 period, according to a slide accompanying Saperstein’s talk. (Fewer than 10% of those leaving since late 2017 joined independent registered investment advisors, despite much hype about such breakaway brokers, he said.) The company has sued some advisors who left for competitors since Prexit, arguing that they were using confidential data when reaching out to their former customers.
Saperstein, who became sole head of Morgan Stanley Wealth Management in April, did not reference the Protocol exit in his remarks, nor specify headcount expectations.
Morgan Stanley had 15,708 advisors at the end of the first quarter. Chief Executive James Gorman said in a separate presentation that he’d be “disappointed if we saw the number drift below 15,000 in the near term.”
Advisor moves to competitors are at the lowest point since the firm’s acquisition of Smith Barney, while retention of clients is improving, Saperstein said.
“It’s an area where we’ve intensified our efforts and have had terrific results,” he said, noting that managers are now spending more time “quarterbacking” the process because they are less focused on recruiting.
“It’s not unusual for us to retain the majority of clients when an advisor departs,” said Saperstein, noting that departures create “a great disruption” for clients.
Asset attrition over the last five years, net of assets added through the firm’s dwindling recruiting efforts, averaged in the single-digit billions of dollars, the company said.
“It’s unfortunate when it’s a net loss, but it’s not a major driver of business performance,” Saperstein said, noting that recruiting and attrition have declined proportionately. “We’re able to achieve the same net result while reducing our recruiting notes. This obviously has a positive effect on our P&L and balance sheet.”
Morgan Stanley’s wealth division fueled 42.6% of the company’s $10.3 billion of revenue in the first quarter and 40.2% of its $2.96 billion of pretax profit. The company on Tuesday continued to project a hefty pretax profit margin target of 27% from the business.
Average advisor productivity grew from $780,000 annually in 2012 to $1.1 million last year, partly reflecting rising markets but also attributable to new technology, including client contact and asset-aggregation tools advisors, according to Saperstein. “We have doubled the number of clients with a financial plan, and we are reaching over 75% more clients with regular digital contact,” he said.
He also credited the productivity improvement to the growth of teams, which allows advisers to develop specialties ranging from prospecting to loan sales.
“This creates a new paradigm,” he said. “It won’t be long before you see teams with production of $50 million, and some day, even $75 or $100 million.”
Morgan Stanley this year increased payout incentives to brokers who introduce dynamically updated financial plans to a customer, as well as to those who grow assets by focusing on clients with more than $250,000 with the firm. (The plan reduces payout on accounts under that level that do not have a financial plan by almost half for some top advisors to 25%, and does not pay them anything on accounts under $100,000.)
More than 40% of the firm’s wealth management assets come from clients holding $10 million or more of investable assets in Morgan Stanley accounts, up from 32% in 2012, Saperstein said, while 82% come from clients with $1 million or more.
Morgan Stanley earlier this quarter bought a corporate stock-plan software company called Solium Capital to help broaden its client base to younger, less affluent individuals who are not generally served by its advisor force. To underscore its directive to advisors to focus on wealthier investors, it is cutting the numbers of advisors that it allows to work with companies on equity-plan management for employees.
— Mason Braswell contributed to this story.