Exclusive: Morgan Stanley courts lower-tier advisers

By Helen Kearney

NEW YORK (BestGrowthStock) – Morgan Stanley Smith Barney is offering big bonuses to attract lower-producing financial advisers to shore up ranks that have contracted sharply since early last year.

Advisers producing as little as $215,000 in annual fees and commissions can get more than $160,000 in an upfront cash bonus to join Morgan Stanley, according to an internal document obtained by Reuters that details recruiting compensation plans.

The adviser can earn an additional $312,000 over five years if he meets certain targets.

Recruiters say these are attractive offers by a top-tier firm for advisers who are typically not courted.

“It’s an excellent deal,” said Rick Peterson, a Houston-based industry recruiter. “It’s a much better deal than they’ll get elsewhere.”

In the wake of the financial crisis, which triggered consolidation of the largest brokerages, record numbers of top advisers jumped to new firms, lured by bonuses of more than triple their annual fees and commissions.

Now, with many of these advisers bound by retention packages, brokerages are having to lower their recruiting standards, said Scott Smith of the Boston consulting firm Cerulli Associates.

“Of course, they would prefer to fill up their desks with $700,000 producers, but if there are no $700,000 guys around, they’ll go to the next best option,” Smith said.

The deal for so-called “fourth quintile” producers is being offered to advisers who generate between $215,000 and $350,000 in annual fees and commissions. Years of experience are also a factor.

This is the first time Morgan Stanley has offered a standardized deal to advisers at this level, said a source familiar with the firm’s recruiting practices but not authorized to speak publicly.

Like the deal Morgan Stanley offers to high-producing advisers, this latest package rewards advisers not only for transferring client assets from their previous firm. Brokers are also offered incentives to increase their business after they arrive.

An adviser can earn up to 55 percent of his annual production as a bonus for growing his business by 50 percent over five years, according to the internal document.

Morgan Stanley is also offering a deal for “third quintile” advisers who generate between $250,000 and $430,000, depending on their years of experience, according to the source familiar with Morgan Stanley’s recruiting.

This deal offers an upfront cash bonus of 100 percent of an adviser’s production figure. Advisers can earn an additional 150 percent of their production over five years if they meet certain targets, said the source.

A Morgan Stanley spokesman declined to comment.

When Morgan Stanley (MS.N: ) (Read more about the money market today. ) and Citigroup (C.N: ) announced plans to merge their brokerage businesses in January 2009, the two banks had more than 20,000 advisers.

By the end of that year, those ranks had fallen to 18,135 as hundreds of brokers — mainly from Smith Barney — were lured away by national rivals, regional brokerages and independent firms.

Morgan Stanley Smith Barney President Charles Johnston has said he intends to maintain the brokerage force at around 18,000.

It is important for Morgan Stanley Smith Barney to maintain its adviser headcount, given its huge fixed costs, said Mindy Diamond, a Chester, New Jersey-based recruiter.

“There are a lot of quality people who want to work at Morgan Stanley that didn’t qualify before,” she said.

Cerulli’s Smith said Morgan Stanley is trying to hire younger advisers who will be teamed up with more experienced colleagues.

“No one is targeting that kind of adviser so they can continue at that level for the long-term. They want to see how they can improve them,” Smith said.

Stock Market Report

(Reporting by Helen Kearney; editing by John Wallace)

Exclusive: Morgan Stanley courts lower-tier advisers