From the November 2006 issue of Research Magazine • Subscribe!

A Higher Level of Competence

Russ Morton is a big man, which is what you'd expect of a University of Oklahoma graduate who spent the first decade of his career in Oklahoma City and Houston.

But don't expect Morton to cut into juicy prime rib at A. J. Maxwell's, an elegant midtown steakhouse on the side of Rockefeller Center. He opts for grilled scallops and asparagus. Perhaps it's the influence of New York City, where he moved nearly two years ago, having been tapped to head the private client branch network for Smith Barney's Global Wealth Management.

His family may still find the Big Apple a novelty, but Morton has little time to enjoy it. He has the responsibility for some 13,200 financial advisors working out of 600 branch offices -- worldwide.

"I probably visited 25 branches over the past six weeks," he says. He is just back from Australia and before that had visited Switzerland. This makes him happy to spend weekends at home and leaves no regrets about unused frequent-flyer miles.

Morton enjoys talking to FAs, because this allows him to spot and solve problems quickly. He rose to a senior management position through the ranks, having started as a lowly trainee.

"We used to have ticker tape back then," he laughs. "Trainees were responsible for sweeping it off the floor."

This career trajectory may be a good match for Smith Barney, which Morton describes as "field-centric." While some of his competitors divide their business into different platforms or channels, such as independent brokers, regional or discount brokers, Smith Barney has no typical model and doesn't intervene in the way its FAs do business. This may be because Smith Barney is an amalgamation of different corporate cultures assembled by Citigroup founder Sanford I. Weill among others over the past couple of decades. The firm's antecedents include Shearson, Lehman Brothers, Solomon Brothers, Schroders, etc. E.F. Hutton, which is where Morton started, was among the first to offer fee-based accounts.

The firm is in the midst of a five-year plan that aims to double broker productivity from around $460,000 achieved in 2004. In the Securities Industry Association's ranking of brokerage firms, Smith Barney's reps regularly finish at the top, says Morton. In his view, Smith Barney's focus on the broker differentiates it from others in the industry, who concentrate on company revenues.

But the compensation structure is changing. "Brokers are being compensated based on their competence, not transactions," says Morton.

If the client pays for your competence, observes Morton, you had better know more tomorrow than you do today. The company is offering continuing education and advanced training.

Morton sees the need for FAs to be trusted advisors and well-rounded financial planners. He stresses the need to know the debt side of the balance sheet, because clients take on debt before they have money to invest.

"Most people have a $200,000 mortgage long before they have $200,000 in their investment account," he points out.

The fee-based business has been growing rapidly at Smith Barney, as it has at other firms, reflecting regulatory demands for transparency as well as a growing desire among clients to see their financial advisor on the same side of the table. The firm has seen its fee-based accounts growing by over 25 percent annually.

But this doesn't mean that transaction-based business and portfolio management is completely out the door, says Morton. Smith Barney maintains a money manager designation, and he doesn't believe that, short of mandating it artificially, the transaction-based platform will disappear completely.

Soon after he took the job, Smith Barney announced it would acquire Legg Mason's brokerage business, adding around 1,540 regional brokers and handing Morton a challenge to retain them and help them transition to a new corporate environment.

Morton believes that the process of acculturation for Legg Mason brokers was eased by Smith Barney's history of diverse corporate cultures under one roof. The acquisition has been a success, according to Morton:

"The Legg Mason division is on track to do more business this year, its first year with us, than it did in the last year as Legg Mason."

The transaction was a swap, with Citigroup transferring to Legg Mason its global asset management business. Citigroup had been slapped on the knuckles by regulators for mixing "manufacturing" of investment products with selling them to clients. But the swap deal was in line with the trend away from the "financial supermarket" concept, exemplified also by the sale of Travelers Insurance earlier in 2005.

From his standpoint, Morton sees this as a virtue. Being out of the product development business leaves Smith Barney brokers free to concentrate on solving clients' financial problems, not marketing the parent's products. They will continue to offer insurance and mutual funds, but as off-the-shelf products that fit the client's needs.

That is not to say that Citigroup has no products at all. With alternative investments enjoying heightened interest among investors, Citigroup offers five asset classes through its Alternative Investments group, including private equity, hedge funds, structured products, managed futures and real estate.

Morton sees great advantages to being linked to one of the world's largest banking institutions and the third largest retail bank in the U.S. Leveraging these capabilities, his brokers can offer Citi bank accounts, mortgages, credit cards and more. Smith Barney clients are welcome as bank clients at any Citibank branch around the world.

This also helps Smith Barney's international expansion. Internal silos around various companies within Citigroup have been crumbling, a process for which Morton credits Charles Prince, Citigroup CEO since 2003. Divisions of the company are working more closely together than ever before.

Smith Barney is less well-known abroad, where it does business as Citigroup Wealth Advisors. The company is expanding in Europe, Australia and Asia, notably in India, Singapore, Hong Kong and Taiwan. In implementing the expansion strategy, Morton is working closely with local Citibank offices.

"There is demand internationally for what we do domestically," says Morton. Helping Smith Barney to offer its services to foreign clients is the fact that Citigroup has an extremely wide network of international offices and branches, with a presence in some countries spanning over 100 years.

The international branch network is still dwarfed by the U.S. side, but Morton expects it to grow faster in nearby years. At the same time, broadening the firm's international presence could help its reps stay abreast of global investment opportunities. This comes back to the same theme -- Morton's determination to expand broker competence.

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Who: Russ Morton, Director of the Global Private Client Branch System for Smith Barney

Where: A.J. Maxwell's, New York City, Sept. 26, 2006

On The Menu: Rib-Eye Steak, Grilled Scallops and a focus on the broker

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