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Morgan Stanley Smith Barney: New ETF Policy, 2Q'09 Results

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Morgan Stanley Smith Barney says it is placing certain restrictions on the sale of leveraged, inverse and leveraged-inverse exchange-traded funds (or ETFs) in response to concerns raised by regulators about these securities.

As of Aug. 7, solicited purchases of these products will not be permitted in traditional brokerage accounts, the joint venture partners say. Unsolicited purchases in these accounts will be permitted but only with enhanced oversight and review. In addition, no purchases of these securities will be permitted in advisory accounts managed by Morgan Stanley Smith Barney Financial Advisors.

“Financial advisors have been encouraged to review existing positions in these securities with clients to emphasize their unique characteristics and risks,” according to a statement.

The recent joint venture, MSSB, includes 18,444 global representatives and $1.4 trillion in client assets. It is being led by James Gorman and Charles Johnston.

The nearly 18,450 Morgan Stanley Smith Barney advisors had average annualized revenue of $671,000 and average client assets of $77 million, according to Morgan Stanley’s second-quarter press release.

This marks an improvement from where Morgan Stanley advisors, on their own, were three months ago. Morgan Stanley had 8,148 financial advisors at the end of the first quarter, March 31.These reps had annualized revenue of about $630,000 in March, a 20 percent drop for the previous year’s $772,000 but above the $603,000 of the quarter ended Dec. 31, 2008.

Total client assets for Morgan Stanley advisors stood at about $525 billion on March 31, down some 25 percent from a year ago. Assets owned by clients with more than $1 million in assets represented 67 percent of total assets. And fee-based assets stood at roughly 24 percent of total assets.

Client assets per Morgan Stanley advisor were $64 million on average, in March, down from $85 million a year ago and $66 million in the quarter ended December 31, 2008.

As for Citi-Smith Barney, it reported 12,659 financial advisors in the first quarter of 2009, including bankers. These advisors had $1.2 trillion in assets under management, and $2.62 billion in revenue for the quarter ended March 31, 2009 — representing about $207,000 per advisor.

Combining average revenue per FA at Citi-Smith Barney in Q1’08 through Q1’09, the advisors had about $850,000 of sales and commissions per advisor.

Second Quarter

In the second quarter of 2009, Morgan Stanley’s global wealth management group posted a pre-tax loss of $71 million, compared with pre-tax income of $272 million in the second quarter of last year. The current quarter includes one month of operating results for Morgan Stanley Smith Barney, which closed on May 31, 2009. The company owns 51 percent of MSSB, which is fully consolidated.

Global wealth management group had a net profit of $47 million after the non-controlling interest allocation to Citigroup and before taxes. Other results included net revenues of $1.9 billion, up 13 percent from a year ago; total client assets of $1.42 trillion; and assets in fee-based accounts of $325 billion, or 23 percent of total client assets.

Janet Levaux, MBA/MA, is the editor of and managing editor of Research magazine; reach her at [email protected].


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