They’re Big, Old and on the Move: Merrill, MS Brokers Take Bonus Bait
(Corrects second paragraph to show that the Gatto team moved to Merrill Lynch.)
The Merrill Lynch-Morgan Stanley merry-go-round is spinning at full force, spewing veteran brokers from one firm to the other in New York City’s eastern suburbs and raising questions as to how sticky recruitment and retention bonuses really are in the long term.
In the latest move, John C. Gatto on Thursday jumped from a Morgan Stanley office in Jericho, Long Island, to a Merrill Lynch branch in the same city. Along with his brother Kenneth and teammate Matt Hughes, the Gatto group produced $5.3 million last year and had about $675 million in assets when they left, according to sources familiar with their book of business.
Reached at his new Merrill office, Ken Gatto declined to comment on the reasons for the team’s move or their numbers. Other advisors who have been in the fray said the jump appears consistent with what happens to some teams as their recruiting loan “handcuffs” are removed.
The Gatto group joined Morgan Stanley’s Jericho office in February 2008, according to Finra’s BrokerCheck database, meaning that the balances on any “forgivable loans” they might have received when they were hired would have dwindled to close to zero after eight years.
A spokeswoman for Morgan Stanley confirmed the departure and declined further comment.
THE FLIP SIDE
The situation was reversed a few weeks ago when million-dollar Merrill Lynch producer Thomas Cassano moved across the street to a Morgan Stanley branch in Garden City. Cassano, who had been with Merrill Lynch for more than three decades, did not respond to calls for comment. Retention bonuses that Bank of America paid when it purchased Merrill Lynch in 2009 generally ran their term at the end of last year.
Brokers do not move only for money, of course, and factors including personalities of branch and complex managers, succession planning and culture also influence the labor-intensive decision to move. But in the case of giant broker-dealers such as Morgan Stanley and Merrill Lynch that are increasingly dominated by parent banks, corporate culture appears less of a differentiator.
The wirehouses, meantime, are girding for more shifts. Thousands of Morgan Stanley brokers who received forgivable loans when the broker-dealer bought Citigroup’s Smith Barney are in the butt end of their contracts, which free them from having to pay back loans in 2019.
The Gatto group were among those lucky-timing brokers who shifted from Smith Barney to Morgan Stanley in 2008 before the crisis-era takeover occurred, meaning they likely received recruiting bonuses that are generally more favorable than retention bonuses. The Gatto brothers began their brokerage careers at Lehman Brothers in the late 1980s and remained with the organization as it was integrated into Smith Barney. Their partner Hughes was first licensed with Merrill Lynch in 1994 in New York City, but joined the Gattos and Citigroup Smith Barney in Garden City in 2000.
Earlier this year, Morgan Stanley veteran James Krug left the same Garden City office to join UBS Wealth Management America’s branch there, according to BrokerCheck. Krug, a registered rep for 28 years, joined Citigroup Smith Barney in 2003 and stayed through the Morgan Stanley takeover.
“The packages are running out. The guys are coming off ‘scholarship,’” said a source who updated AdvisorHub on some of the Long Island shifts. Terms of the recruiting bonuses, meanwhile, have generally jumped to nine-to-ten years from seven years — but the percentages of production that brokers are given also have risen, he and others noted.
For Morgan Stanley, Long Island has been a particularly active hotspot. As we have reported, megaproducer Roger Coleman resigned from one of its Garden City branches in January, leaving behind a $28 billion practice.
The shifts are not confined to Long Island, of course, nor to Merrill and Morgan Stanley.
Anthony Capriotti, a Morgan Stanley broker in Pittsburgh, moved to a Wells Fargo Advisors branch just outside the city two weeks ago. Like the Gattos, he had jumped to Morgan Stanley in 2008 from Smith Barney as part of a team led by his now-retired father, a few months before the takeover.
In San Francisco last week, 41-year Merrill Lynch veteran jumped to First Republic Bank.