Morgan Stanley may cut brokerage force further

NEW YORK (Reuters) – Morgan Stanley may cut the number of brokers in its wealth management division below previously announced targets as part of a broader cost-saving effort, Chief Financial Officer Ruth Porat said Tuesday.

The possible cuts come on top of a reduction of about 300 brokers during the first quarter.

Morgan Stanley previously said it aimed to have 17,500 to 18,500 financial advisers within the Morgan Stanley Smith Barney franchise, but Porat said at the Deutsche Bank Global Financial Services Conference that the target may be lowered.

Morgan Stanley spokesman James Wiggins declined to provide a new headcount target but said additional reductions would come by pruning weak performers, as was done in the first quarter.

As of March 31, Morgan Stanley said it had 17,800 financial advisers, making it the largest brokerage force in the world. Its main brokerage rival, Bank of America Corp’s Merrill Lynch, lifted its adviser force by a net 184 during the first quarter to 15,695.

Cost-cutting has been one of the key responsibilities for Greg Fleming, who was named president of the Morgan Stanley Smith Barney brokerage unit in January.

On Tuesday, Porat said Fleming had been identifying other cost savings within the division in addition to headcount reduction. For instance, Morgan Stanley Smith Barney has been pushing clients to opt into electronically delivered statements rather than paper ones.

 

DEEPER DIVE

Porat mentioned the possible cuts in a broader discussion about Morgan Stanley’s efforts to slash costs. She said management has been going through operations with a fine-tooth comb to identify ways to outsource and get rid of obsolete or redundant technologies and services.

For instance, management has given employees ways to ”self-certify” expenses, Porat said, to cut services that they have but do not use.

Now, the bank is examining ways to perform a “fundamental re-engineering” of the business, she said, examining cheaper ways to process and store data on servers, as well as outsourcing opportunities and the potential for consolidating legal entities.

“The next leg of this effort is a much deeper dive,” said Porat.

Through these efforts, Morgan Stanley hopes to save $500 million on an annualized basis by 2012 and $1 billion by 2014.

However, because Morgan Stanley is also investing heavily in new technologies for trading and regulatory reform — what Porat called “change the bank” activities, as opposed to “run the bank” activities — she cautioned that overall expenses will not necessarily decline. Morgan Stanley plans to spend $500 million on new technology this year, the same as in 2010.

“We’ve protected our tech spend even in a volatile operating environment because we believe it’s essential,” said Porat.

Last quarter, Morgan Stanley spent $2.4 billion on non-compensation expenses, up 13 percent from a year earlier. (Reporting by Lauren Tara LaCapra, editing by Dave Zimmerman and John Wallace)