Yield of Dreams

Morgan Stanley Continues to Lose Reps Amid Integration

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Morgan Stanley reported slightly lower advisor count and higher FA productivity in the third quarter, on the heels of a name change and its purchase of Citigroup’s 14 percent stake in the brokerage.  

Just last month, Morgan announced it would purchase Citi’s 14 percent stake along with about $5.5 billion of deposits, at an implied 100 percent valuation of $13.5 billion. The firm plans to purchase Citi’s remaining 35 percent stake by June 1, 2015. Morgan also recently announced it would drop the Smith Barney moniker from its name to rebrand the unit Morgan Stanley Wealth Management. 

“A key to our future is the increased contribution of our wealth management to our revenue, profitability, returns and funding stability,” said James Gorman, Morgan Stanley’s chairman and CEO, during a Thursday morning conference call.

Despite the progress toward integration, advisors have been leaving the wealth management unit. The firm has 16,829 advisors, down 1 percent from the second quarter and 5 percent from the year-ago period. Merrill Lynch and Wells Fargo, which reported earnings earlier this week, said their headcount remained flat in the third quarter.

“They’re mucking along, but with 16-17,000 advisors, it’s just tough to recruit to fill natural attrition and retirement,” said Scott Smith, associate director at Cerulli Associates. “That trend isn’t so bad for them—to lower headcount a little bit while increasing average production. You can only have so many big fish.”

Ruth Porat, chief financial officer at Morgan, said attrition was lower in the third quarter than it has been for the last several quarters. “There’s always some movement in and out, but retention is running at higher levels,” she said.

Annual revenue per advisor was up 2 percent sequentially and 9 percent year over year to $790,000. Client assets per advisor increased to $105 million, from $101 million in the second quarter.

Total client assets rose 4 percent from the second quarter to $1.8 trillion, which Porat attributed to higher-performing equity markets and positive flows. Fee-based asset inflows were $7.5 billion, up from $4.1 billion in the previous quarter, bringing total fee-based assets to $556 billion.

Wealth management revenues were flat during the quarter at $3.3 billion, while net income declined 14 percent from last year to $146 million.  

Non-interest expense was up 6 percent from last quarter to $3.1 billion, including $193 million in integration expenses and the purchase of the 14 percent stake.

“In wealth management, we are already benefiting from our increased ownership, both because we are earning a return on the capital held against the 14 percent, and the growing deposit base, which will drive funding efficiency and revenue expansion,” Porat said.

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