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Practice Management > Compensation and Fees

Morgan Stanley's Branch Plans: Consolidation to 750 Offices in U.S.

By Janet Levaux

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Morgan Stanley Smith Barney President Charles Johnston told reporters April 23 at an industry conference that the broker-dealer expects to continue closing offices as part of the firm’s consolidation, eventually getting down to about 750 branches from today’s 870.

The joint venture between Morgan Stanley and Smith Barney, formed on May 1, 2009, started at about 1,000 offices.

It still has some overlapping locations, excess capacity and expiring leases, according to a spokesperson. Morgan Stanley, however, does not intend to exit any markets, and “many markets will continue to support multiple locations,” the spokesperson said.

(Before the joint venture, Morgan Stanley had about 465 U.S. branches.)

In the latest quarter (ended March 30, 2010), MSSB had 18,140 financial advisors, down a tad from 18,135 in the fourth quarter of 2009 and 18,444 in the second quarter of 2009. In the first quarter of 2009, before the joint venture with Smith Barney, Morgan Stanley had 8,148 advisors.

MSSB advisors have annualized sales of $685,000 vs. $630,000 a year-ago for the Morgan Stanley advisors.

Assets under management for MSSB are $1.6 trillion vs. $1.56 trillion in the fourth quarter of 2009 and $525 million a year ago. The represents an average of $88 million per advisor.

Fee-based assets are $413 billion or 26 percent of total assets vs. $379 billion or 24 percent in the fourth quarter of 2009.

The group had new assets of $5.8 billion in the first quarter of 2010 vs. negative $3.7 billion in the previous quarter.

The joint venture’s first-quarter results, reported as Morgan Stanley’s Global Wealth Management Group, included pre-tax income from continuing operations of $278 million, compared with $119 million in the first quarter of last year. Income after a non-controlling interest allocation to Citigroup and before taxes was $163 million. The quarter’s pre-tax margin was 9 percent.

The group also had net revenues of $3.1 billion, compared with $1.3 billion a year ago. The increase primarily reflected incremental net revenues following the closing of the MSSB transaction, the company said in a statement.

Compensation expenses of $2.0 billion increased from $844 million a year ago due to the inclusion of MSSB. The compensation to net revenue ratio for the current quarter was 64%, compared with 65% a year ago.

Non-compensation expenses of $855 million increased from $336 million a year ago due to the inclusion of MSSB. The results for this quarter included compensation and non-compensation costs of approximately $40 million and $60 million, respectively, related to the MSSB integration.

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