Morgan Stanley CEO James Gorman announced Thursday that Greg Fleming, head of the firm’s asset management business, will replace Charles Johnston as head of wealth management. Johnston will stay on as Vice Chairman of Morgan Stanley Smith Barney through the end of 2011, while Fleming will continue to manage the asset management division.
Some Smith Barney vets voiced frustration about the news, though they said they had seen it coming. Johnston, 57, was head of Smith Barney’s wealth management division before it merged with Morgan Stanley in June 2009 under a joint venture between Morgan and Citigroup. Johnston, who began his career as a financial advisor at Merrill Lynch, was seen as something of an advisor advocate. Meanwhile, Fleming is an unknown quantity for financial advisors at the firm.
“For Smith Barney guys, we’ve lost our voice at the top,” said one former Smith Barney advisor in California who has been with the firm for almost two decades. “I think what we do fear, at least on the Smith Barney side, is that the Morgan Stanley guys are just coming in and invading everywhere,” he said. “But if you see this news and you say, ‘Ok, I’m out of here,’ you’re a bozo.”
A flood of Smith Barney advisors left Morgan Stanley shortly after the merger was announced, but headcount at the firm has since stabilized. Some advisors say they are just waiting until their retention agreements expire in the next two, three or four years, however.
“Am I upset that Johnston is leaving? Oh, absolutely,” said another former Smith Barney financial advisor in the Midwest, who migrated to the firm from A.G. Edwards. “I came to Smith Barney because it was a firm that cared about clients. Now it’s a New York-centric firm. Gorman only cares about how much money Gorman can make,” he said, citing new fees on several kinds of accounts.
The complaint about fees is not a new one. It’s one that surfaced in our annual broker report card survey as well, and in earlier interviews with financial advisors. Morgan Stanley has cut payouts on accounts with under $100,000 in assets, begun charging $150 for all new account openings, cut payouts on revenues from discounted advisory fees, begun charging account inactivity fees, and implemented stricter rules on “householding,” making it more difficult for an advisor to get the fee waivers granted to households with $1 million in assets or more, said financial advisors.
In general, advisors see Morgan Stanley as tougher on costs and more profit conscious than Citigroup was. The wealth management division was Morgan Stanley’s most profitable in the third quarter of last year and is expected to contribute around half of profits going forward. Meanwhile, Gorman has already pushed back the deadline for reaching a promised profit margin target of 20 percent for the wealth management division, up from the current 8 percent.
Some top tier advisors defend the new fees and payout cuts for smaller accounts, saying that Gorman has to focus on profits in this environment. “I don’t think Smith Barney had a choice in doing some of the things they’re doing, and advisors are blaming Morgan Stanley management for it,” said one former Smith Barney advisor in New York. “My feeling is that there was too much fluff at the firm, and with the higher costs of compliance and training, the firm has decided to focus on the top half of the firm, and the top clients as well.”
Gorman and Fleming worked together at Merrill Lynch and have known each other for years. Gorman hired him to turn around the asset management business a year ago, which had been banged up by market and real estate losses. Morgan Stanley Smith Barney is now the largest retail wealth management operation in the country by financial advisors and assets.