Morgan Stanley (MS) will lay off a total of 200 to 300 trainees and lower-producing financial advisers during the first quarter, and most of those cuts have already taken place, a source knowledgeable about the situation told Registered Rep. The firm’s wealth management division, Morgan Stanley Smith Barney, should end the quarter with about 17,800 advisors, still the largest brokerage force in the U.S. by headcount. Dow Jones newswires broke the story Wednesday.
Registered Rep.’s source could not break out how many of the 200-300 advisors pink slipped represent trainees and how many represent financial advisors. Asked whether the firm planned to do any more cutting at the low end in coming quarters, he said, “We’ll always reserve the right to assess the situation on the low end.” The layoffs do not reflect on the success of the firm’s training program or indicate any change in their plans for the program, he said. In early 2010, the firm announced plans to bring in about 2,000 trainees and this year it has said it will hire another 2,000.
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Lower-end advisors getting the boot include those who have worked at Morgan for at least a year, have been in the industry for at least five years, and are generating annual production under $75,000. Trainees getting the boot include those who have worked at Morgan Stanley for six to 36 months and have been generating under $25,000 in annual production.
“It’s a clear signal to the broker force again that the environment has gotten more competitive again. You want to foster top performers,” said Aite Group analyst Alois Pirker. Both Morgan Stanley and Merrill Lynch are trying to increase average production across their brokerage forces, as well as raise average client assets, he adds. “Obviously those clients are more profitable, and taking low end producers out of the mix increases profitability. Both measures are strategic. And given that they both have such big broker forces, they can scale back without losing market presence.”
The cuts come as Morgan Stanley works through the integration of its wealth management platform following the joint venture with Citigroup, which closed in June 2009. Turnover among top revenue-producing financial advisors at the firm was “near historic lows” last quarter, the firm said. Total financial advisor headcount sat at 18,043, down from 18,119 the previous quarter. Early on, CEO James Gorman set a profit margin target of 20 percent for the wealth management division, but has had to push back the deadline for achieving that target more than once, say analysts Brad Hintz of Bernstein and Alois Pirker at Aite Group. Most recently, Gorman has said the division will achieve that 20 percent some time in 2012. At the end of the fourth quarter, Morgan Stanley Smith Barney reported profit margins of 12 percent.
“It’s easy to put those numbers out there, but to deliver on them is not something that’s totally within your control,” said Pirker. To raise profit margins, the firm needs to kick up average revenue per advisor, which sat at $742,000 in the fourth quarter, up from $692,000 the previous year. The wealth management division closed about 40 retail locations in 2010.
Earlier this week, we reported that Morgan Stanley’s wealth management division is considering dropping Smith Barney from its name. The firm has sent a survey to clients asking them to consider a series of possible new names, none of which include Smith Barney.