As Morgan Stanley Smith Barney and UBS AG move to more complex management structures, some branch managers are scrambling to rebuild their client books.
These management structures are systems that have been long used by Bank of America Corp.'s Merrill Lynch & Co., where one manager oversees one or more "satellite" branches in a region. The manager of each satellite branch is then usually required to also service a book of clients. The manager is compensated for performing his management tasks, but the salary is less than that of a nonproducing manager, as the shortfall is made up by his own production.
Traditionally, at Morgan Stanley and UBS, each branch was run by its own manager who had few, if any, clients. Morgan Stanley began the move toward the complex structure before its joint venture with Smith Barney, but fully implemented the changes in September when Morgan Stanley Smith Barney created 137 complexes nationally, with each complex manager overseeing an average of seven or eight branches and between 50 to 200 advisers.
Approximately 100 previously nonproducing Morgan Stanley Smith Barney branch managers had to decide whether to go back into production, look for another role or leave the company.
Meanwhile, UBS established a system of 64 complexes and 19 stand-alone branches (not including the private wealth management offices, which cater specifically to ultra-high-net-worth clients). Each stand-alone branch kept its own nonproducing branch manager, but every branch manager, whose office was overseen by a complex manager, had to go back into production. Nearly 100 branch managers were affected.
Many of the managers affected have not had a book of business for years and said it is not an easy thing to conjure up overnight.
"Basically they're punishing branch managers who stayed with the firm and were loyal through the whole crisis," said one branch manager.
A branch manager at another firm who faces the same dilemma, said he feels they've actually been made the scapegoats for departing advisers. "Advisers left because their net worth took a hit with the falling stock price. But it looks like [the firms' executives] have said 'they can't keep advisers on board, what can they do for us?' " he said.
And, this manager said it is not only the branch managers that have been affected. Brokers are also concerned that they'll not only have to compete with their manager for clients, but vie with clients for their manager's attention.
"I have 20-something advisers who all need maybe 10 minutes a day from me," he said. "Now I'm going to have to close my door at a certain time of the day and say, 'I'm working with clients.' " The manager said some of his duties will be taken over by the complex manager, but he said his firm has not told him what will remain his responsibility.
Some brokers are concerned that their best managers will leave, said Danny Sarch, a recruiter in White Plains, N.Y.. "A lot of advisers stayed in their seats when they hated the firm because of loyalty to any given manager," he said. "The firms have destroyed corporate loyalty because of the way they crushed the stock [and the advisers' net worth]."
Most observers are pretty clear on the reason behind the change: cost cutting.
Bob Ellis, a principal in the wealth management practice at the consulting firm Novarica, a division of Novantas LLC, said branch managers were earning an average of $300,000 to $600,000 a year in salary and bonuses. "Production at these firms has gone to hell because of the market," he said. By making the managers become producers, they can cut base salaries to the $150,000-to-$200,000 range, he said.
Andy Saperstein, the head of wealth management at Morgan Stanley Smith Barney, said the move is not all about costs. He said that it is also designed to streamline management and allow for decision-making at the local level. "It means I can give more responsibility and control to my best managers," he said. "You can't monitor the decisions of 1,000 different organizations."
Bill Willis, an industry recruiter in California, said that, once managers are established, there is an upside in the new system. "The system works fine," he said. "It has been working at Merrill Lynch for a long time. But to ask people who haven't done business in years to build a book is very difficult. Once it's put together it's OK, but they're putting it together in a shotgun fashion."
To help the managers along, Morgan Stanley Smith Barney and UBS have provided some training. Morgan Stanley Smith Barney is continuing to pay managers their current salary until Oct. 1. Beyond that, industry sources said managers will likely get a lower base salary and bonus, and will have to make up the rest in production from their books.
Morgan Stanley Smith Barney managers have also been given specific asset targets that they must reach within the next year. One industry source said the managers had to sign a contract agreeing to reach $10 million in client assets over the next year or they'll be fired. However, they will not immediately go onto the regular payout grid and will initially receive a 50% payout on their production.
UBS is only paying its managers' existing salary until June 30. Then, their base salary will be cut by around 50%, said one source familiar with the plan. But, the managers will also receive a 50% payout on production until the end of next year. UBS managers have not been given specific asset targets.
Morgan Stanley Smith Barney faces another challenge. The complex manager chosen is likely to be from a different legacy company than the branches he or she oversees. So, lifelong Morgan Stanley brokers may find themselves with Smith Barney managers.
Saperstein said the firm recently trained all of the new complex managers on both firms' systems. They will also have technical support staff from both firms. The technology is on track to be fully integrated within two years. "I have no doubt that with the proper training and work experience, they will become familiar with both systems," he said.