Rep count down at MSSB — but assets and production on the rise

Critics and analysts questioned Morgan Stanley's tie-up with Smith Barney. But as the company's fourth-quarter results show, CEO James Gorman's drive for diversification is starting to pay off.

Morgan Stanley Smith Barney LLC’s brokers are getting more productive and appear to be gaining traction in the more desirable segments of the wealth management market.

The brokerage’s more than 18,000 representatives are bringing in more revenue and generating bigger margins, according to the company’s fourth-quarter earnings supplements released yesterday.

Revenue in the wealth management unit rose 7% from the comparable quarter last year. MSSB’s total rep count stood at 18,043 at the end of 2010, down 1%, or 92 total reps, from a year earlier — but still ranked as the largest brokerage force in the industry.

Revenue per rep of $742,000 marked an 8% increase from the third quarter and 7% from the fourth quarter of 2009. The company said turnover of top revenue-producing reps during the year was near historic lows.

Morgan Stanley also showed impressive growth in assets under management in 2010. For the year, the division took in $22.9 billion in new assets, with nearly two-thirds of that amount, $14.1 billion, coming in the fourth quarter.

Assets per global rep jumped to $93 million — an 8% rise from Q4 2009, as brokers’ base of wealthy clients expanded. About 74% of the firm’s assets in the fourth quarter belonged to clients with accounts larger than $1 million, compared with 70% at the end of last year. At the same time, client assets in the less than $100,000 segment of the firm’s business dipped by 21% over the last year.

The performance of the firm’s brokerage business helped Morgan Stanley avoid a rather poor fourth-quarter earnings report. Indeed, the retail brokerage’s results help offset weak numbers in its fixed-income-trading operations – which plays into chief executive James Gorman’s strategy of smoothing the volatility caused by the company’s less stable banking and trading businesses.

MSSB’s biggest investment banking competitor, The Goldman Sachs Group Inc., until recently has been getting a lot more credit from investors for sticking with its banking and trading businesses. The recent gyrations in fixed-income markets, however, hit Goldman’s earnings and stock price hard.

With Morgan Stanley’s shares up 4.5% for the day, the market may be warming up to Mr. Gorman’s vision.

“The strong performance we delivered in the fourth quarter — and the strong net new asset growth we achieved during 2010 — are the clearest signs yet of the important progress we have made in integrating Morgan Stanley Smith Barney,” Mr. Gorman said of the firm’s Global Wealth Management Group in the company’s earnings release.