Unlocking Real Value Blog

Poll: Morgan Stanley-Smith Barney on the Wrong Track

Published on Mar 24, 2010 – FUNDfire – An Information Service of Money-Media, a Financial Times Company
By Gregory Shulas

The Morgan Stanley Smith Barneywirehouse is headed down the wrong track as the one-year anniversary of the firm’s creation approaches. That’s the consensus of industry professionals both inside and outside the company.

FundFire asked readers in a poll Tuesday whether management is leading the combined wirehouse in the right direction. Respondents could choose yes or no and had to identify whether they work for Morgan Stanley Smith Barney or are unaffiliated with the firm.

Poll respondents in both categories expressed dissatisfaction with the path the firm is on. Of the poll participants affiliated with the wirehouse, 58%, or 155 voters, said the firm is headed in the wrong direction. In contrast, 42%, or 113 Morgan Stanley Smith Barney voters, say they think the firm is headed the right way.

Of the survey respondents unaffiliated with the firm, 60%, or 78 voters, said the firm is losing its way. About 40%, or 51 voters, disagreed, saying Morgan Stanley Smith Barney is making the right strategic moves.

The Morgan Stanley Smith Barney deal closed on June 1, 2009, after Citigroupopted to spin off the Smith Barney brokerage as part of its larger efforts to restore profitability. The wirehouse’s opening months as a merged entity were marked by a drop in both assets and advisors.

At the start of 2010, the brokerage had approximately 18,135 advisors and managed assets of $1.56 trillion. This compared to $1.7 trillion in assets and 20,000 advisors in January 2009, around the time the deal was announced.

FundFire has reported on how escalating recruiting costs are putting the brokerage under pressure, forcing officials to reduce the numbers of new advisors they plan to bring on board this year. Morgan Stanley Smith Barney president Charlie Johnstonsays due to the changing environment the firm will concentrate on producing more revenue from existing teams, rather than poaching advisors from rival firms.

Andy Klausner, founder of strategic consultancy AK Advisory Partners, says he’s surprised that more affiliated voters did not register their dissatisfaction with the firm’s direction.

“Given the circumstances of the industry when the merger commenced, and the enormity of the task of integrating two such large and diverse companies, if I were the company, I might take these results as a small victory,” Klausner says. He believes a recent lift in the financial market may have lifted the advisor force’s optimism, further dampening the negative vote.

As of 3 p.m. Tuesday, nearly 400 FundFire subscribers participated in the survey.

Participants were self-selected and were only able to vote once. The survey is an unscientific sampling of FundFire’s audience, which consists of asset managers, institutional investors, consultants, financial advisors and service providers.

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