Morgan Stanley Drops Smith Barney From Name

“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.”

Sarch offered an opposite view. “I predict the Harvard Business School could one day do a case study of this as one of the worst industry mergers over the years,” he said.

For Sarch, Gorman has led Morgan Stanley in ways that differ from his leadership style and decision-making at 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. I have read some comments by Greg Fleming on how he sees the business. I am impressed.” 

For his part, Sarch maintains this approach is not good for a brokerage firm. “Gorman, when he was with Merrill Lynch, one explained that his biggest fear in leading the industry’s largest sales force was that the experience of clients could vary so much from one advisor to the next. I think he took that concern over to Morgan Stanley,” he said.

“Thus, he thought, if you create certain rules on pricing and other procedures, then you are taking more [decision-making] out of the hands of advisors—because ultimately you don’t trust them. That crates a culture that is both acceptable to some and unacceptable to others.”

This debate, of course, will continue to play out over the coming years—and the coming financial reporting seasons. Morgan Stanley had a 50% drop in second-quarter profits, so analysts and other observers are looking for sharp improvement.