Merrill pads its lead in race for assets

IRVINE, Calif. — Merrill Lynch & Co. Inc. continues to lead the wirehouse race for net new client assets. Merrill reps brought in $61 billion in net new money last year, up 17% from the amount in 2005. Those figures include Merrill’s overseas advisers, who account for about 9% of the firm’s $1.6 trillion in retail assets. In the fourth quarter alone, Merrill reps brought in a net $22 billion in client assets, the highest quarterly gain since the first quarter of 2001. For all of 2006, the average Merrill broker gained about $4 million in net new assets. By contrast, Smith Barney and Morgan Stanley brought in just $8.5 billion and $9 billion, respectively, in net new assets for all of last year. That is about $1 million per broker at Morgan Stanley and $680,000 at Smith Barney. All three firms are based in New York. By the numbers Net new asset figures are a key industry metric. They remove the effect of market appreciation from client asset levels and indicate how well firms are attracting and retaining brokers and clients. Smith Barney’s $9 billion in net new assets was one-third of what the firm attracted in 2005. It has blamed the slow growth on the loss of some Legg Mason reps early last year. New York-based Citigroup Inc., Smith Barney’s parent, exchanged its asset management operations for Baltimore-based Legg Mason Inc.’s brokerage unit in December 2005. In 2005, Morgan Stanley lost nearly $3 billion in net assets due to turmoil in the management ranks and layoffs of about 1,000 lower-producing brokers. Wachovia Securities LLC of Richmond, Va., doesn’t disclose net new asset figures. UBS Financial Services Inc. of New York has yet to report its year-end financials. Through the end of September, UBS’ U.S. retail unit had brought in $10.4 billion in net new money in 2006. Although that total was off 37% from the $16.4 billion the firm raised in the first nine months of 2005, it still put UBS brokers on track to have brought in, on average, about $1.7 million in net new assets for 2006. UBS’ net-new-asset drop from that of 2005 occurred largely in last year’s second quarter. The firm blamed declining financial markets, falling investor confidence and fewer recruits. New asset gains, which can vary widely from period to period, generally come as the result of recruiting experienced brokers while at the same time retaining talent, observers say. “The firm that recruits the most will be up most,” said Danny Sarch, founder of Leitner Sarch Consultants Ltd., a Wall Street recruiting firm in White Plains, N.Y. Merrill increased its global representative base by 5%, or 720, last year. Morgan Stanley’s sales force shrank by 16% in 2006, and Smith Barney’s fell 2%. Morgan Stanley downplayed the continued attrition, though chief financial officer David Sidwell told analysts last month that the “environment is very competitive for people.” The firm has brought on board brokers who are more productive than those the firm lost, he said, adding that Morgan Stanley is comfortable with its current number of producers. Still, the firm is actively recruiting. Its recruitment packages generally are the richest on Wall Street, sources say. Morgan Stanley brokers “are getting more comfortable with where the firm is going,” said Richard Kron- man, a recruiter with Kronman Matthews Inc. in Los Angeles, so attrition might lessen. Smith Barney faces some retention challenges caused by an onerous compliance environment, observers say. “They’re very strict on compliance” after suffering from scandals, said Terry Rutledge, a recruiter at Rick Peterson & Associates in Houston. Smith Barney brokers’ deferred compensation money, invested in poorly performing Citigroup stock, also isn’t the effective golden handcuff it used to be. Merrill, though, clearly has some momentum. The firm attributed its relatively strong showing to its technology and support capabilities, which the firm said helps attract and retain advisers. The firm has “every conceivable way [for a broker] to gather assets” with a variety of products and services, Mr. Rutledge said. “They seem to have a better system in place” than other firms, he said. Merrill also offered incentives to its brokers based on new assets, Mr. Sarch said. Regarding the huge inflow in the fourth quarter, “the cynic in me says brokers saw [it was] late in the year” and rushed to add accounts, he said. A Merrill rep on the West Coast, who asked not to be identified, said the firm had a similar program in 2005, as well, when the firm raised $17 billion in net new assets in the fourth quarter. But the broker added that advisers generally can’t control the timing of when new accounts transfer in.