60 Days to Decision Day: Morgan Stanley Smith Barney Finalizing Plans To Unify Brokerages
Morgan Stanley Smith Barney finalizing plans to unify brokerages
August 3, 2009
Morgan Stanley Smith Barney, the joint venture sealed in January merging two gigantic brokerage units, plans to finalize major operational and technology integration decisions in the next two months.
But its 20,000 financial advisers will begin seeing improvements in the products and services they can offer clients even before then, such as changes in its unified managed account program that will improve upon each original firm's separate offerings.
The new brokerage was born in January, when Citigroup agreed to merge its brokerage, Smith Barney, into Morgan Stanley's competing business. But the merger of the former rivals involves more than nuts-and-bolts integration issues, in the wake of the credit crisis that spawned the combination, as their financial advisers reassess the plusses and minuses of working for a bulge bracket firm.
In setting up shop, MSSB has announced it will take two years to integrate the best aspects of the Morgan Stanley and Smith Barney technology platforms. The major integration decisions, however, are expected to be finalized in two months.
"We're making all the platform decisions together, something we've been working on for four months," says Jim Rosenthal, head of firm-wide technology and operations for Morgan Stanley who is heading up the transition office for MSSB. "The process will conclude in 60 days, when we'll announced which technology decisions we've made and what the timing will be."
Those decisions will stretch from back-office clearing to what front-office workstation will be supplied to the advisers. Even sooner, however, MSSB plans to start rolling out enhanced product offerings to the advisers.
"We're taking the first step with a product offering over the next month," Rosenthal says. Morgan Stanley and Smith Barney each offered unified managed accounts (UMA) allowing investors to mix separately managed accounts, mutual funds and ETFs, and MSSB is looking to offer identical choices on the currently separately-run platforms. It will be drawing on the "intellectual capital" of both platforms--the investment strategists, research analysts and due diligence processes--to soon offer new models to construct clients' UMA accounts.
"We'll draw on some of the in-house research and analysis MSSB has for portfolio construction to improve that in the unified-managed-account product, both on a discretionary and non-discretionary basis," Rosenthal says. Discretionary accounts permit advisers to buy and sell securities without clients' consent.
On July 28, MSSB announced the inclusion of a fixed-annuity from Nationwide Life Insurance Co.'s in its UMA program, called Select Account, that will provide customers with guaranteed lifetime income.
The soon-to-arrive changes are an example of how the firm aims to integrate the best of each original brokerage's products to be offered across each advisory platform until the merger is completed. The goal, Rosenthal says, is to "harmonize" products and services across the platforms, making them more alike, so when the migration to a single platform occurs in two years, there will be as little disruption as possible. The firm has identified 200 ways in which the platforms function differently or were developing new unique capabilities. Enhancements in areas such as customer relationship management will be rolled out "in waves" over the next two years.
Few could have imagined such a joint venture prior to the travails suffered over the last two years by Wall Street's biggest investment houses. Struck Jan. 12, the deal with Citigroup gives Morgan Stanley a 51% stake and control over the joint venture, which creates a firm with $1.7 trillion in client assets, 6.8 million client households globally and more than 1,000 offices. Citigroup received $2.7 billion in cash upfront and will continue to own a significant stake in the venture for at least five years.
