Morgan Stanley and Bank of America end poaching / bonus wars

Money On Hook

The days of these firms paying big bonuses to lure each others staff - and retain their own- may be ending.

Morgan Stanley and Bank of America, owners of the world’s largest brokerages, say the days of paying big bonuses to lure each other’s brokers and keep their own in place may be ending.

Bloomberg reports that James Gorman, Morgan Stanley’s chief executive officer, said last week on a conference call that compensation costs may fall as financial advisers switch firms less frequently.

Bank of America won’t offer new retention bonuses to Merrill Lynch’s top performers after payments tied to the takeover of the brokerage expire in about two years, John Thiel, the unit’s chief, said in a 14th October interview.

A slowdown in recruiting may boost brokerage profits, which have long been limited by competition for top advisers. Some have been offered several times their annual pay-cheque as an incentive to defect to a rival and bring their clients. No wealth-management company can hold down the bonuses on its own, according to Alois Pirker, research director at Aite Group.

'This might be the time that the problem gets tackled', said Pirker, whose Boston-based firm specializes in the financial services industry. 'The goal has to be to move away from this or at least reduce it to a more reasonable level'.

Morgan Stanley, which built the world’s largest brokerage with 16,500 advisers by acquiring Dean Witter and Smith Barney, said the firm paid out 57% of its wealth-management revenue as compensation in the third quarter, down from 63% a year earlier. The bonuses given to brokers during the turmoil of the financial crisis amounted to a 'tax on the industry', Gorman said.

To access the complete Bloomberg article hit the link below

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