New York - Morgan Stanley said it will cut back on using recruitment bonuses to poach established financial advisers as a new rule throws the industry’s traditional hiring practices into doubt.
The firm will honour certain existing recruitment deals while it comes up with new policies, Shelley O’Connor and Andy Saperstein, the New York-based bank’s co-heads of wealth management, wrote on Tuesday in a memo to employees.
Bank of America’s Merrill Lynch brokerage and UBS Group have signalled similar moves.
Last year, the Department of Labour briefed banks that the industry’s typical signing bonuses could run afoul of the agency’s incoming fiduciary rule.
Upon joining a new firm, star brokers were often granted awards of more than three times the revenue they generated in the past year, with the bonus structured as a loan that’s forgiven as the employee stayed with the company and hit targets.
The briefing prodded firms including Morgan Stanley and Merrill Lynch to restructure their enticements, and now brokerages are moving to make more permanent changes.
"Going forward, we intend to increase the investments and resources supporting our existing talent and platforms even further and significantly reduce experienced adviser recruiting," O’Connor and Saperstein wrote.
The Department of Labour is introducing a fiduciary rule that, broadly speaking, says advisers handling retirement accounts must give advice in a client’s best interest and shouldn’t earn more than reasonable compensation.
The regulator said in October that hiring incentives risked violating rules because they include sales targets that can pressure brokers to push expensive products on savers.
In January, President Donald Trump signed an executive memorandum directing the regulator to unreview the incoming rule, which gave the industry hope that it may be watered down.
Labour Secretary Alexander Acosta wrote on Monday in a Wall Street Journal op-ed that the measure will take effect June 9 with no further delay.
The Journal reported earlier on Tuesday on Morgan Stanley’s decision.
For years, brokerages derided recruitment deals as a zero-sum game that hurt the industry’s profitability, because major firms mostly traded top brokers among themselves. Still, that didn’t stop companies from recruiting to replenish their ranks when advisers crossed the street.
UBS chief financial officer Kirt Gardner said last month that his firm had also "refocused" on retention instead of recruiting, and that the benefit of handing out fewer signing bonuses would start to appear in the firm’s costs in the fourth quarter of this year.
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