In Practice February 10, 2009

Advisers Anticipate Their Future at MSSB

The details of how the joint venture between Morgan Stanley and Smith Barney will play out are yet to unfold, but retirement plan advisers seem optimistic about the deal.
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Last month, Morgan Stanley and Citigroup agreed to a joint venture that will combine Citi’s Smith Barney brokerage arm with Morgan Stanley’s brokerage arm. The combined firm of Morgan Stanley Smith Barney will be the largest brokerage in the world, with 20,000 advisers (see “Morgan Stanley Smith Barney is Born’).

A handful of Smith Barney and Morgan Stanley retirement plan advisers, who spoke with PLANADVISER.com on the condition their names not be used, suggested the venture would help their retirement practice by combining the forces of solutions and brands. However, advisers said they had little to no concrete information about how the deal—which isn’t set to close until the third quarter—will affect their practices. Representatives for both companies told PLANADVISER.com that there was nothing to report yet about how the retirement and institutional business will be organized.

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Side by Side

 

Both Smith Barney and Morgan Stanley advisers expressed satisfaction with what their firms already offer. A Morgan Stanley retirement plan adviser suggested several initiatives he was pleased with at Morgan Stanley, including more provider partnerships and open architecture—which Smith Barney advisers mentioned as well. A Morgan Stanley adviser in the Northeast region mentioned that the firm was working with providers to add co-fiduciary status. He added he hoped to keep that “autonomy’ he enjoys at Morgan Stanley.

A Georgia-based retirement plan adviser for Smith Barney mentioned that the firm has ramped up its internal support and service with third-party providers, while enabling advisers to also be vendor neutral. “We’re really pleased with what we’ve got now. We have a very open architecture, fully transparent program,’ he said.

Recently, Citigroup Global Wealth Management (including Smith Barney) unveiled a restructuring of its various retirement groups, including several initiatives to come. A Smith Barney spokesman confirmed that those plans are still underway (see “Smith Barney Reorganizes Retirement Group’). As the deal won’t take effect for a while, Smith Barney is continuing to operate as they have. “It’s safe to say that retirement is going to be an important focus [of the joint venture] in whatever shape it takes,’ the spokesman said. Morgan Stanley offered no comment about the yet-to-be-determined institutional side of the joint venture.

One initiative Smith Barney retirement heads mentioned to PLANADVISER.com in the fall had to do with offering more holistic planning to participants. A New England-based Smith Barney adviser said this approach is “phenomenal,’ particularly helping with retirement income. “The whole focus of Wall Street is always accumulation,’ he said. “We need to do much better jobs of helping plan participants and retirees with retirement distribution.’ He added: “At the end of the day, I think they get it, and they’re going to bring those tools to the new joint venture.’

 

Branding Power

 

Several retirement advisers do not expect much to change, and if anything, they expect the combined forces of the firms to be better. “In my humble opinion, I don’t know if it’s going to have much of an impact anyway,’ said a Connecticut-based retirement plan adviser for Smith Barney. “It’s a non-event.’

A Massachusetts-based Smith Barney adviser was not alone in suggesting that Smith Barney was a larger player in the institutional retirement space, with more back-office support than Morgan Stanley. Whether that is true depends on who you ask. Regardless, all advisers seem to agree that the joint venture can only help their brand. No advisers seemed concerned that plan sponsor clients would be troubled by the deal. If anything, it was a relief for some of the Smith Barney advisers. “Clients are thankful to get away from the Citi name,’ said the Georgia-based retirement plan adviser for Smith Barney.

A Midwest-based Morgan Stanley adviser said the joint venture with Smith Barney helped him win large client against UBS earlier that week. “We’re excited about the joint venture because the solidification it gives our brand name in the marketplace,’ he said.

The Northeast-based Morgan Stanley adviser echoed the thoughts of other advisers: “I want to see the best offered from both…I am excited about it, because I think only positive things can come out of it. Two are better than one.’


In Practice February 10, 2009

Independent B-Ds Look to Recruiting

Independent broker/dealers (IBDs) say recruiting is important—but the competition for advisers is high.
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IBD firms ranked recruiting as the most important factor in the future growth of their firm, according to research by Cerulli Associates. However, Cerulli said the challenge is exacerbated by the stagnating number of advisers in the industry, as the firm has noted in previous research (see “B/Ds Dealing With Dwindling Numbers of Advisers’ and “Recruiting Young Advisers Requires Less Traditional Approach“)

“Recruiting advisers has turned into a battle for marketshare,” said Bing Waldert, director of Cerulli Associates and author of the report, in a press release.

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Cerulli noted two particular trends affecting the ability of IBD firms to recruit. The first is in relation to the adviser who starts in the insurance channel: These advisers find that as their practice matures, they need a more sophisticated set of services and products to offer their clients, Cerulli said. The firm sees advisers shifting to more independent channels and firms in order to address a higher net worth client.

Cerulli data show that in 2008 independent broker/dealers recruited about 36% from other IBDs, 27% from the insurance channel, and 12% from wirehouses.

The second trend relates to the breakaway adviser. “We have seen an industrywide movement away from structured channels to more independent ones,” said Waldert. “While we believe that this overall trend is somewhat overstated—there is an historic mismatch between advisers’ stated interest and actual movement to independent channels—advisers are going independent in greater numbers than ever before.” Cerulli research has previously noted that many wirehouse advisers like the idea of going independent, but few actually do. However, Cerulli and others have noted that the recent crisis might cause an acceleration of advisers going independent (see “Once a Wirehouse Adviser, Always a Wirehouse Adviser?’ and “Competition for Advisers Heats Up’).

Cerulli also said that breakaway brokers now have more resources at their disposal. Other advisers have crossed over to being independent successfully, building the blueprint. Meanwhile, more technology is available to help advisers going independent. A recent survey by Schwab Institutional, which provides support for advisers, found that most advisers were happy with their decision to become registered investment advisers (see “RIAs Don’t Regret Going Independent“).

The decision to go independent is usually about a philosophical decision to become a business owner rather than someone’s employee, according to Cerulli, and it is also ultimately event-driven.

“There is typically a seminal event that causes an adviser to look for a new broker/dealer,” said Waldert. “While the long-term effects of the recent market turmoil are unclear, perhaps the current economic environment represents one such event.”

 

 

The research is from Cerulli Report, State of the Independent Broker/Dealers: Channel Sizing and Industry Implications.

 

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