Morgan Stanley Smith Barney is the world's largest retail brokerage. Its provides individuals, businesses and institutions with brokerage and investment advisory services, financial and wealth planning, credit and lending, cash management, annuities and insurance, retirement and trust products and services. A joint venture between financial giants Morgan Stanley and Citigroup Inc., the brokerage has an army of 18,000 financial advisers and more than 1,200 offices in 36 countries. Morgan Stanley has a 51% stake and can buy the remainder over the next five years.
Morgan Stanley Smith Barney is bringing together two distinct broker cultures. Morgan Stanley’s group traces its roots to the legacy firm of Dean Witter, a retail brokerage that catered to middle-class investors. The firm was featured in the film "The Pursuit of Happyness," based on the memoirs of entrepreneur Chris Gardner who interned there. Smith Barney, once considered the crown jewel of Citigroup's wealth-management business, became part of Citi in 1998 when the Travelers Group Inc. merged with Citicorp, but never fully integrated with the bank, operating largely as a separate fiefdom with its own culture. Legg Mason Inc. brokers were added into the Citi fold in 2005. Morgan Stanley Private Wealth Management, the joint venture's ultra-high-net-worth segment, caters to private clients and institutions with at least $20 million in investable assets. It has 18 offices worldwide, including 11 in the U.S.
The new venture counts some of the top financial advisers in the U.S. among its ranks. Barron's 2010 Top 1,000 Advisers ranking includes 231 Morgan Stanley Smith Barney brokers, just behind Bank of America Merrill Lynch's tally of 317. Challenges include marketing an unwieldy brand name and juggling the interests of its two mammoth shareholders. Aligning the ranks took time away from business development but much of the integration was done by early 2010. Moving to a shared technology platform will take until September 2011. The joint venture will also include Citi's Quilter and Smith Barney Australia.
The firm hires and trains about 1,800 advisers a year to replace those who leave, and MSSB's adviser headcount ranges from 17,500 to 18,500 advisers. Because recruiting experienced advisers has become expensive, most hiring in 2010 is expected to be at the associate level.
Like other firms, the company raised base salaries to make up for lower bonuses and is paying a larger proportion of compensation in stock that can't be sold immediately and can be clawed back for up to three years if the firm realizes losses on certain trading positions or investments. Members of its operating committee will earn 75% of bonuses in stock, with payments subject to clawbacks and a portion to tied to the company's stock performance. Average compensation per employee was $235,193 in 2009. CEO James Gorman didn't take a cash bonus for 2009, instead receiving his pay in deferred compensation. Chairman John Mack passed on a year-end bonus for the third year in a row.
Will more advisers be jumping ship? About 2,000 have reportedly already left since the joint venture. When brokers cash their retention-bonus checks they'll have a number, which along with deferred compensation, that a rival would need to match to hire them. The package is a forgivable nine-year loan, so brokers would have to repay it should they leave the company before the end of the term. The packages range from 30% to 75% of production. About 6,500 brokers were eligible for the deal, which required production of more than $500,000 a year.
Brokers might want to think twice before defecting to another firm. MSSB sued five employees who left to join Hightower Advisors and leveled a regulatory complaint against the firm.
Morgan Stanley Smith Barney's financial advisers program offers training, mentoring and financial tools and technology. To apply, applicants must complete a talent assessment. Once in the job, employees have their choice of organized employee-networking opportunities, from American Indian to Latino groups and others.