Morgan Stanley laid off roughly 50 workers among its mutual fund wholesaling and marketing teams this month in what some believe to be cost-cutting measures due to redundancies. Others say Morgan Stanley has made the cuts due to a new, generalist sales approach. The firm, which is based in New York, declined to comment.
An executive recruiter, who has been working with displaced Morgan Stanley staff, said that the company "announced who they were keeping and who they weren't" on May 16. "It was sad," he said. "People who were with the company a long time, excellent people, were just laid off."
Those who kept their jobs had to re-interview with the firm, said the recruiter, who asked to remain anonymous. Before the layoffs, the wholesale and marketing team had been comprised of about 150 staff members, he said.
Morgan Stanley, which oversaw $53.4 billion in assets as of March 31, has suffered mutual fund outflows of nearly $1.2 billion so far this year, according to Financial Research Corp. of Boston. Net outflows at the company were $4.8 billion in 2001, according to FRC.
A Generalist Approach
Observers say the company is making the changes in an effort to cut costs. But one source, who asked not to be identified, said the move is part of a realignment of Morgan Stanley Investment Management that began in September of 2000. "There's been some integration of the investment, technology, marketing and sales teams," he said.
The firm, which offers about 230 proprietary funds under its Morgan Stanley and Van Kampen brands, is trying to develop a customer-centric approach that attempts to solve clients' problems rather than simply push products, the source said.
Morgan Stanley is retasking its wholesalers to focus on a broad array of products and investment styles, such as managed accounts and mutual funds of various investing styles, said the recruiter. Previously, each wholesaler had specialized in only one or two of those areas, he said.
The firm's retail wholesalers will now be organized under regional managers, each of which will have a team of representatives who report to them, the recruiter said. "The people reporting to them are generalists. So it's now one person that's basically going to do everything."
Broker/dealers are reportedly not receptive to the changes. "The branch managers are not very happy about it," the recruiter said. "It sounds very unlikely to succeed. To really know all the nuances of all the different products, those are very technical things. It's highly unlikely that there's one person who can know all that in a general way. I have yet to speak to anyone who thinks it will work."
One Point of Contact
Still, Matt McGinness, a senior analyst at the Boston research firm Cerulli Associates, said that a more general model can benefit a company, especially when it is sending droves of wholesalers through the doors of branch locations.
The reason, he said, is that the number of wholesalers visiting branches skyrocketed in the last decade. Thirty-four fund families offered load funds in 1990, and this year, 157 fund families offer load funds, he said. That means that as more firms are fighting for shelf space among broker/dealers, wholesalers, even specialists within the same firm, are increasingly stepping on each other's toes, McGinness said.
McGinness suggested a scenario in which two specialist wholesalers from the same firm might schedule meetings at the same branch on the same day, causing conflict and forcing their sales manager to step in and mitigate the problem.
"When firms make reductions in their sales force, it's because they see inefficiencies in the way the sales force is deployed. They are not getting significant benefits in having a sales force specialized by product," McGinness said. "The generalist model is the one to go [with] in this kind of environment."
And, referring to the case of Morgan Stanley, he said, "If you can reduce your headcount while improving efficiency, then that might be an attractive proposition for you."
McGinness said the generalist model has been proven to work. American Funds of Los Angeles has used this approach, earning the firm a reputation as "one of the most successful broker-sold companies," he said.
With $12.5 billion in net sales year to date through March 31, American Funds is the nation's top wholesaler, according to FRC. The firm sold nearly $4.8 billion in mutual funds in March alone, according to FRC.
Other observers said the changes to Morgan Stanley's wholesale team make sense in a turbulent economy. "I realize why they're doing it," said Alan Papier, a mutual fund analyst at Morningstar of Chicago. "It's not uncommon that sales and support are among the positions cut by any fund company when they're trying to realize some cost savings."
Whatever distribution model Morgan Stanley uses, Papier added, the firm's funds won't likely suffer so long as its performance remains steady. "I think it's just going to go back to performance," he said. "The performance of the investment product is, to me, exceedingly more important than the staff they have out there trying to sell the fund."