MSSB productivity way up – but more job cuts coming

First-quarter financial results for Morgan Stanley Smith Barney LLC provide further evidence that the wirehouse wealth management business is firing on all cylinders. The two-year-old joint venture between Morgan Stanley and Citigroup Inc. posted revenue of $3.48 billion in the first quarter — an 11% increase over the comparable period last year. Profits were up and new-asset flows were positive. What's more, adviser productivity was up substantially. Adviser head count in the wealth management division fell to 17,800, 243 fewer than at the end of last year, as Morgan Stanley “reduced the number of low-performing advisers,” according to the firm's investor conference call this morning. While the firm has seen some notable defections by large producers in the last year, turnover in the top two quintiles of its adviser ranks was near historic lows. Officials also gave notice during a call today that the culling of low-end producers will continue in the second quarter, likely resulting in further reductions of the adviser force. With the overall broker-count decreasing, annualized revenue per adviser grew 12% to $767,000 versus last year. At the same time, assets under management per adviser increased 10% to $97 million. Compensation and benefits rose 8% to $2.13 billion. Client assets under management totaled $1.72 trillion, up from $1.6 trillion in the comparable quarter last year. While most of that growth was due to buoyant investment markets, the firm also saw $11.4 billion in new client asset flows. The growth in fee-based business continued to surge at MSSB. All in, fee-based client assets grew 21% to $501 billion in the quarter. It now represents 29% of total assets under management. Clients with more than $1 million in assets account for 74% of total AUM. As was the case with Bank of America and Wells Fargo & Co., which reported earnings in the last week, the overall performance at Morgan Stanley was weighed down by other businesses, notably fixed-income trading. Companywide, 1Q revenue was $7.6 billion, down 16% from 1Q 2010 due to a 33% drop in the institutional securities division and a 4% decline in the company's asset management business. Likewise, net income was $966 million, compared with $1.84 billion last year, a 48% decline. That was still much better than average estimates from Wall Street analysts, however.