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What comments by Krawcheck and Gorman about improving wirehouse attrition leave out

Breakaway trend appears as vital as ever and asset flows are in reverse

Friday, January 22, 2010 – 1:00 AM by Brooke Southall
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Howard Diamond [with wife Mindy's hand on shoulder]: Ms. Krawcheck should not exhale so quickly

There was a collective exhale at wirehouses this week as James Gorman and Sallie Krawcheck signaled that the storm of attrition that has plagued their companies may finally be easing.

Gorman, the CEO of Morgan Stanley, said that his industry had declared a truce with itself and that poaching will relent during the next couple of years.

Sallie Krawcheck, president of Bank of America’s Global Wealth and Investment Management division also commented that she has seen an easing of attrition — and that losses of brokers were less than expected.

“We’ve seen some [attrition] but not as much as we would have expected,” Ms. Krawcheck said last week, according to Family Wealth Report.

Merrill Lynch’s brokerage ranks increased from the 14,979 brokers it had on staff as of Sept. to 15,006 financial advisers at year’s end. Merrill Lynch started 2009 with about 18,000 brokers. Most of its losses [about 2,000] occurred in the first quarter.

Yet though there may be some truth to what these executives have to say based on these statistics, what they leave out may be just as revealing – especially with regard to Merrill Lynch, according to Howard Diamond, managing director of Diamond Consultants in Chester, N.J., an executive search firm for financial service professionals.

Bleeding has stopped

“What I find interesting is that they’re saying that the bleeding has stopped,” he says. “What’s missing is how many advisors left and how many they had to pay to come to Merrill. You can play with recruiting numbers.”

A former top Merrill Lynch executive who asked to remain unnamed offers a similar thought.

“I wonder how many she expected to leave, and what does she secretly fear will happen next quarter?” he asks. “Regardless, you don’t get paid to stay the same size. You only get paid to grow.”

Also left unsaid is that though intra-industry poaching may diminish some this year, it may have little bearing on whether an advisor chooses to break away to independence, according to Diamond.

“Perhaps the recruiting wars are over but the brokers wanting to go independent still want to go independent,” he says. “That market is determined by other factors like: building equity, gaining autonomy, open architecture, quality of life and building a legacy.”

Significant activity

Diamond adds: “In the independent space, I think you’ll see a significant amount of activity.”

He agrees, however, that far less activity can be expected from Gorman’s Morgan Stanley Smith Barney brokers where retention bonuses hold sway and morale is okay. Its brokerage ranks have held steady at about 18,000 since the merger of the two wealth management divisions last May.

The same cannot be said for Merrill Lynch’s morale and steadiness.

“Ms. Krawcheck should not exhale so quickly,”’ Diamond says. “Merrill Lynch brokers are still seeing what’s happening at Bank of America. There’s still lots of dissatisfaction there.”

The Merrill Lynch executive says there is a big reason for dissatisfaction that gets lost in the conversation.

“Notice the net new asset outflows – four straight quarters of dollars fleeing,” he says. “ML has never seen that before – unprecedented.”



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