Profit at Morgan Stanley's global wealth management division jumped in the first quarter as retail investors poured in $11.4 billion of new assets.
The brokerage division, which includes a 51 percent stake in Morgan Stanley Smith Barney, posted after-tax profit of $257 million, down 6 percent from the 2010 fourth quarter but up 20 percent from a year earlier.
Morgan Stanley retained $183 million of the profit.
The brokerage business, which generated 45 percent of the parent company's consolidated net revenue, benefited from resilient, focused and engaged retail investors who shook off a range of geopolitical concerns during the quarter, Chief Financial Officer Ruth Porat said in an interview.
Morgan Stanley's broker count fell by 243 during the quarter to 17,800 advisers. Most were lower-producing advisers who were eased out, a trend that may continue this quarter, Porat said on a conference call with analysts.
Morgan Stanley Smith Barney remains the world's biggest brokerage force, and its adviser count remains in synch with goals outlined at inception of the joint venture, Porat said. The venture between Morgan Stanley and the Citigroup Inc unit began in June 2009.
The company's branch network contracted to 832 from 851 during the quarter as overlapping locations were closed.
Bank of America Corp's Merrill Lynch, the second-largest broker, lifted its adviser force by 184 during the first quarter, to 15,695.
Productivity per broker at Morgan Stanley improved to an average of $767,000 in annual fees and commissions in the first quarter, up from $742,000 in the 2010 fourth quarter. At Merrill Lynch, the average was $931,000 in the first quarter.
Retail revenue at Morgan Stanley rose 11 percent from a year earlier to $3.44 billion, primarily reflecting higher asset management fees and commissions as markets improved.
Morgan Stanley Chief Executive James Gorman, who is betting more on retail brokerage than his major bank competitors, appears on track to meet growth targets that include $50 billion of net new assets. The first quarter's $11.4 billion of new assets, however, were down from $14 billion during the fourth quarter.
Morgan Stanley said it increased its revenue share from its most desirable clients -- those with at least $10 million of investable assets -- 13 percent from a year ago. It oversaw $545 billion of assets from such clients as of March 31.
Overall, Morgan Stanley's wealth management assets grew 7 percent to $1.7 trillion. That contrasts with $1.6 trillion at Merrill Lynch and $1.2 trillion at Wells Fargo Advisors, the third-largest U.S. brokerage force.
Gorman, who joined Morgan Stanley in early 2006 to run retail brokerage, is making slow but relatively steady progress in the division's operating efficiency. Its pretax profit margin in the first quarter was 10 percent, up from single digits during the financial crisis but well below the 20 percent target he seeks.
A company spokesman said the goal for hitting that number has been delayed to late 2012 from this year.
Margins were hurt by rising expenses. First-quarter compensation and benefits grew 8 percent from a year earlier to $2.1 billion, while other expenses increased 13 percent to $964 million.
Porat said wealth management margins will be boosted in part by expansion of Morgan Stanley's private banking business, which sells mortgages and other products to wealthy individuals and their families.
The company added 18 branch-based private bankers during the first quarter, bringing the total to 178, and plans to add about 30 per year going forward, Porat said.
(Reporting by Helen Kearney; Additional reporting by Lauren Tara LaCapra; editing by Jed Horowitz and John Wallace)