Morgan Stanley Vows To Keep Shrinking Its Advisor Head Count, But Revenue Hits A Snag

Thursday, October 20, 2011 07:04
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Morgan Stanley Vows To Keep Shrinking Its Advisor Head Count, But Revenue Hits A Snag

Tags: Morgan Stanley

While other firms throughout the industry are trying to scale up, Morgan Stanley Smith Barney is still eager to get a little leaner. Maybe just not like this.

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Last quarter, Morgan was happy to see a net 347 advisors -- 2% of their force -- leave the company. 

 

They tended to be "lower performers" in the firm's eyes, but if you look at the specific cases, that's usually been code for "coming from the Smith Barney side of the family." 

 

Ruth Porat, Morgan's chief financial officer, says they're "very focused" on cost management at the giant brokerage firm, which definitely means further reduction in the advisor numbers is on the table.

 

Unfortunately, the advisors who are left got smaller anyway. Net annualized revenue per advisor dropped 4.8% over the course of the quarter to $747,000 -- about in line with what we're seeing throughout the industry.

 

Profitability attributable to the wealth management unit fell even faster, down 6% over the course of the quarter. To put it simply, costs kept climbing even though the amount of money the diminished advisor base brought in declined.

 

And while new client flows pumped $15.5 billion into the company, overall AUM still declined 8% due to the market and, presumably, account churn from those advisors seeking warmer homes elsewhere.

 

Maybe the new, leaner Morgan Stanley Smith Barney will be more efficient. It will almost certainly have a shorter name.

 

But for now, this looks like growth in the wrong direction. And an opportunity for their competitors to hunt clients and talent.

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