Bank of America Corp.’s Merrill Lynch looked at the
business of advising public pension funds and saw no future in it. That meant
Brian and Timothy Brice’s future would be with another brokerage. The brothers
run a Birmingham, Mich.-based practice that had been with Merrill Lynch since
its founding by their father in 1967. They managed $4.5 billion in client
assets, much of it money in pension funds, and took that business this fall to Morgan
Stanley’s institutional consulting arm, Graystone Consulting.
The move underscores the contrasting visions of the rival
banks regarding a specialized and lucrative niche in the advisory business,
with Merrill Lynch believing tightened regulation of public-pension advising
poses too much trouble, and Morgan Stanley confident it can profitably manage
those risks. Some $3 trillion in assets are held by pension funds, and Morgan
Stanley says it is happy to take over at least part of the field ceded by
Merrill.
In 2011, Merrill Lynch first told its advisers to stop
taking on public pension funds as new clients. Then the company announced last
year that it was largely shutting down its services to the funds. This year,
however, the company made clear the Brices would have to shed a serious portion
of their business by September.
Merrill’s retreat from advising public pension funds
affected less than a dozen advisers, people familiar with the matter said.
Merrill declined to disclose how much in assets it was giving up overall, but
it had been seen as a perennial competitor to Graystone, which says it manages
roughly $14 billion in assets from public pension funds.
The shift didn’t affect Merrill Lynch’s work with other
institutional clients, including private pension funds, endowments and
foundations. And the company wants to expand its business in areas such as
advising on institutional retirement services, including 401ks, health savings
accounts and equity plans, she added.
Morgan Stanley took over Graystone in its acquisition of the
Smith Barney brokerage from Citigroup Inc., which was completed last
year. Graystone has about 50 financial adviser teams who consult on more than
$200 billion in institutional client assets, including pension funds,
endowments and foundations. The $14 billion in public-pension assets represents
about 7% of that total, and Graystone would like more of them.
The Brices’ business was the biggest recent win in terms of
assets, and a couple more practices are moving over in the coming months.
Overall, Graystone’s assets under management have grown by nearly 75% between
2010 and 2013.
There aren’t that many available practices that have
expertise in advising public pension funds. The activity requires special
certifications and, to be compliant with the recently enacted Municipal Advisor
Registration Rule, both advisers and their broker-dealers must register with
the Securities and Exchange Commission. Governments have tightened up on the
business, including tighter restriction of political contributions designed to
curb “pay to play” tactics.
Morgan Stanley’s other two largest competitors, UBS Wealth
Management Americas and Wells Fargo Advisors, also have institutional
consulting units that continue to advise public pension fund clients. Both are
smaller in terms of total assets under management. UBS spokesman Gregg
Rosenberg said the firm has “many” municipal clients and plans to add more in a
“selective manner.”
There is also competition from investment consulting firms
such as Cambridge Associates LLC and NEPC LLC, which already advise many public
pension funds.
The Brices said their move to Morgan Stanley has gone
smoothly, with nearly all their clients already having made the transition with
them. It helped to see familiar faces among their new employers, Brian Brice
said.
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