What Gorman’s Departure Means for Morgan Stanley Advisors

James Gorman is stepping down as Morgan Stanley CEO within the next 12 months as a respected executive who grew the firm in large part by putting wealth management at the forefront.

While it’s too soon to know what the future holds for Morgan Stanley’s advisors, or who will replace Gorman, industry consultants who work with wirehouse advisors and firms said Friday they expect his successor to continue the firm’s wealth management business down the path he laid for it.

“Morgan Stanley, under the leadership of James Gorman, has accomplished what Goldman Sachs so far has not,” Mark Elzweig, president of consultancy Mark Elzweig Co., told ThinkAdvisor by email. “He diversified their retail revenue streams with the purchases of E-Trade and Solium. Both of those businesses now provide leads for their top advisors. Gorman moved the firm away from a trading shop with a retail division into a well-diversified wealth management powerhouse focused on fee-based business.”

Two of the consultants said that Gorman’s replacement could be Andy Saperstein, managing director and head of Morgan Stanley Wealth Management.

Will Recruits Wait and See?

Gorman’s departure from the top job “leaves a little bit of an unknown as his messages and influence created [a] steady path” for Morgan Stanley advisors, compensation consultant Andrew Tasnady, managing partner of Tasnady Associates, told ThinkAdvisor by email. Typically, advisors are “not keen on unknowns or changes” until they’re sure the way forward will be calm, he said.

“Advisors knew what to expect from joining MS,” Tasnady said. “Some new potential recruits may pause until they see what the replacement holds regarding any changes in direction.”

Gorman’s biggest contribution to Morgan Stanley’s wealth management business was “identifying and lobbying [the] rest of MS management on the value of wealth management vs. the rest of MS businesses,” but his successor “might hold [a] somewhat different vision on [the] relative balance of the businesses,” Tasnady added.

Meanwhile, according to Danny Sarch, president of Leitner Sarch Consultants, “Gorman’s leaving will only impact the advisors if the new CEO has a different vision. It’s too early to tell. I don’t think the announcement will have any effect on recruiting.”

Louis Diamond, president of Diamond Consultants, told ThinkAdvisor in a phone interview: “Gorman has been one of the most respected CEOs within the financial services industry as a whole. The strategy that Morgan Stanley has employed of buying Solium and E-Trade, and really making a bigger play within the workplace, has been very well received.”

Diamond predicted: “As long as Morgan continues its strategy and focuses on continuing to develop its resources and platforms for advisors, it seemingly shouldn’t have a major impact on advisors because I think he’s already kind of laid the groundwork and foundation for a very successful run for whoever the successor is.”

Diamond also predicted Gorman’s leaving won’t affect the firm’s wealth business because the firm “already derives much of its revenue from wealth and investment management, and that strategy is well in place.”

Who Will Be Morgan Stanley’s Next CEO?

The leaders whose names have been floated to replace Gorman are all “very well respected and well received,” Diamond said.

He added: “It would impact advisor recruiting if advisors felt like the firm’s strategy was adrift or there was turmoil but since this is so well in advance of when he is leaving … and it’s been in the works for a while, I don’t think anyone’s going to think twice about a legend retiring or kind of moving on.”

Gorman said in January there were three finalists to take over as CEO when he leaves.

He didn’t name them, but they are widely assumed to be Saperstein; Edward (Ted) Pick, co-president, head of institutional securities and co-head of corporate strategy; and Dan Simkowitz, head of investment management and co-head of firm strategy and execution.

“Andy worked with Gorman since being together at McKinsey and then Merrill,” Tasnady pointed out Friday, adding that Saperstein “knows exactly the history and tradeoffs of all the decisions within Wealth Management, such as comp design, incentives, attraction and retention issues, etc.”

The board “would need to consider [the] other two’s strengths and what their goals are for balance of businesses,” Tasnady added, noting the pick will likely depend on what the firm wants to emphasize.

Diamond also predicted Saperstein will be the next CEO “simply because he’s been in charge of Morgan Stanley’s crown jewel, which is wealth management.”

He will also be the choice if the firm “continues to emphasize the importance of wealth management and how wealth management, really the rest of the bank, feeds the workplace business.”

Diamond added of Saperstein: “Elevating the individual who’s been in charge of their most important business unit would make a lot of sense, and he’s someone that’s very well respected. he has a similar background as [Gorman]. He probably thinks in a similar way. He’s been within the wealth business [his] whole career.”