From the November 2012 issue of Research Magazine • Subscribe!

October 24, 2012

Joint Venture Drops Smith Barney

Morgan Stanley says that its U.S. wealth management business is now branded Morgan Stanley Wealth Management (MSWM). In other words, the group’s name no longer includes Smith Barney.

The joint venture between Morgan Stanley and Smith Barney came together in 2009, with Morgan Stanley having a 51% share and Citigroup 49%. Recently, the two parties agreed that Morgan Stanley could increase its majority ownership of the venture and assume full control by June 2015.

With the name change, Morgan Stanley executives praised the effort’s results to date, while experts gave it more mixed reviews. “Today, as we move under one name, we are culminating a three-year effort to integrate two outstanding franchises,” said Morgan Stanley Chairman and CEO James Gorman, in a press release. 

The venture was valued at $13.5 billion on Sept. 11. It included about 16,930 employee advisors as of June 30 with some $1.7 trillion in assets. The number of advisors as of the second quarter dropped 2% from March 30 and 6% from last year.

“The name change was not unexpected,” said Danny Sarch, president of the recruiting group Leitner Sarch Consultants (which works with several key rivals of Morgan Stanley), in an interview. “Finally, we have the culmination of what was not a joint venture, but a takeover.”

Others see it a bit more positively. “It’s a smart branding move for Morgan Stanley,” said Chip Roame, managing partner of Tiburon Strategic Advisors (which lists Citigroup as a client), in an interview. 

“They spend so much on advertising. It’s smart to leave no consumer confusion between the MS brand used by all its businesses and the MSSB brand,” Roame explained.

Both experts agree that name changes are just part of the game plan when two firms come together. But they are more divided on how the overall integration and leadership of the combined firm is doing—and where it is headed.

While others have been critical of Morgan Stanley, Roame says he’s “more generous.” In fact, the consultant gives it a “B” on the integration. “Integrations are never easy, especially of two prideful firms who thought they individually were doing things correct,” he said. “There are always naysayers, but I think this has been a smart two-step integration.”

For Sarch, Gorman’s leadership style, decision-making and other methods as head of Morgan Stanley have differed from what they were when he led Merrill Lynch. Technology is one example. 

“In terms of the tech changes, publicly Morgan Stanley says they are all wonderful and nothing unexpected has happened. But privately, they’ve told brokers, ‘We will do better,’ and they keep coming out with fixes, so that indicates the real story,” he said.

“Going forward, I believe ultimately, they will fix the technology,” he continued. “But, as we’ve seen with this matter, those at the top of the organization believe in a certain way of managing, which is top down, away from the field, a McKinseyian approach.”

Roame—formerly of McKinsey & Co., the giant management consultancy—maintains Gorman and the management team are moving the firm in the right direction. “I think Morgan Stanley is led by a savvy, strategic guy in Gorman,” he said. 

“I am impressed by this move to acquire Smith Barney,” Roame noted. “I have read some comments by Greg Fleming on how he sees the business. I am impressed.”•

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