A year after taking over retail at Morgan Stanley — amid much skepticism — James Gorman has made believers out of most of the firm’s troops.
IRVINE, Calif. — A year after taking over retail at Morgan Stanley — amid much skepticism — James Gorman has made believers out of most of the firm’s troops.
When the former Merrill Lynch & Co. Inc. of New York executive took charge of Morgan’s retail unit in February 2006, the business was hemorrhaging brokers and assets following the forced exodus of former chief executive Philip Purcell the year before.
But last month, the firm reported that for its fiscal first quarter ended in February, it added $6.7 billion in net new assets, while its broker population remained stable at around 8,000.
Although some industry observ-ers remain skeptical, brokers say there’s been a huge change of attitude since Mr. Gorman’s arrival at New York-based Morgan Stanley.
“There is now a relentless drive to make this a quality firm,” said a California-based rep at the firm who initially was skeptical.
“Mediocrity is no longer acceptable,” said the broker, who asked not to be identified.
Morgan producers “don’t get the beating-around-the-bush answers anymore,” said Rick Peterson, a Houston-based recruiter who began working with the firm after Mr. Gorman took over.
Other financial results point to a rebound. Average production per broker reached a record $750,000 in the February quarter, up from $550,000 in the fourth quarter of fiscal 2006.
The quarterly gain in assets, considered a key measure of broker recruiting and retention, was the highest since the firm has been
disclosing that figure, going back to February 2004.
Andy Saperstein, Morgan Stanley’s chief operating officer of national sales and, like Mr. Gorman, a former Merrill Lynch executive, said that the asset gains came from a combination of recruiting and new assets from existing advisers.
Broker attrition “has dwindled,” he said. “I’d like to believe it’s because they like what’s going on.”
This month, the firm also officially combined the two broker-dealers it was operating — one for the old Dean Witter side, the other for Morgan Stanley’s original high-net-worth reps — helping put to rest lingering concerns that the firm’s retail business would be sold.
Investment bank Morgan Stanley & Co. merged with retail broker Dean Witter Discover & Co. in 1997.
“It says to the [retail] brokers: It’s going to be harder to sell us to Wachovia [Securities LLC of Richmond, Va.],” said a Morgan Stanley rep based in the South, who asked not to be identified.
The firm’s stock performance — although more likely a reflection of Morgan Stanley’s investment banking muscle than its retail prowess — also is contributing to the positive vibes. It’s up nearly 30% over the past 12 months, versus little change in the Amex Securities Broker/ Dealer Index.
Brokers have significant stock holdings through their deferred compensation plans.
One tangible improvement brokers point to is a newly designed online client interface, ClientServ, which was upgraded last November.
“It’s awesome,” said a Morgan Stanley broker in the Midwest, who asked not to be identified. “Clients can see three years’ worth of statements, cost basis, deposit history [and] what [tax] years deposits are for.”
Morgan Stanley now is rolling out a new system for generating customized client reports.
The system consolidates performance, asset allocation and other information from different accounts into one document, and automatically inserts client disclosures, brokers say. The firm is working on other technology enhance- ments, Mr. Saperstein said, declining to be more specific until the rollouts are announced.
Despite all the good feelings, Morgan Stanley still has plenty of skeptics.For one thing, brokers and industry observers wonder if the firm’s hefty recruitment packages will pay off.
Morgan spokesman James Wiggins said that the firm expects that its recruiting efforts will pay off, along with investments in existing advisers and trainees.
The firm will train more than 1,000 new reps this year, he said.
With the focus on boosting production, some also wonder if the firm plans to cut more low-end brokers.
“That won’t happen,” Mr. Saperstein said. “We’re not going to have any [more broker] layoffs” like in 2005 when Morgan Stanley let go 1,000 of its lowest producers.
The firm specifically decided not to increase the “penalty box” for lower producers in a new compensation plan it rolled out in December, Mr. Wiggins said.
The firm this year plans to increase broker head count by about 3%, or 250 reps, Mr. Saperstein said.
Meanwhile, some observers still suspect that Morgan Stanley will sell the retail business, which produces about 15% of the firm’s revenue but only 5% of its profits.
“I think they’ll either spin off the [old] Dean Witter component ... or the whole thing gets acquired by a bulge bracket firm” or large international bank, said Tim White, managing partner at Kaye/Bassman International Corp. in Plano, Texas, who recruits high-end advisers for the wealth management industry.
Morgan Stanley’s ef-forts to clean up the balance sheet, eliminate middle management and consolidate operations looks like a “prelude to a sale,” he said.
Morgan Stanley officials repeatedly have denied such rumors.
“We probably have the best business on the institutional side, and we’re well on the road now on the retail side,” Mr. Saperstein said.
“There are good strategic reasons for the businesses to be together,” he added.
