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What to consider in brokerage merger

Signs for Morgan Stanley and Smith Barney.

TEXT OF STORY

Tess Vigeland: It was all over the headlines this week: The troubled financial giant Citigroup is merging its Smith Barney brokerage arm with rival Morgan Stanley. The new firm will be called Morgan Stanley Smith Barney. And it will become the largest brokerage firm in the world, dispensing advice on a combined $1.6 trillion in other people's money. So what should you do if you own a few pennies in that giant pool of cash? Marketplace's Dan Grech has more.


Dan Grech: Morgan Stanley spokesman Jim Wiggins has this advice for clients.

Jim Wiggins: I would say relax. No immediate changes are going to be required. We're going to make it as seamless as possible. And we're going to offer a world class range of advice and services.

This, of course, is the company line. Morgan Stanley Smith Barney has already launched a publicity campaign to convince its customers to stay calm -- and stay put. Here's Alex Samuelson, a spokesman with Citigroup's Smith Barney, the other half of this joint venture.

Alex Samuelson: We have created a client letter to let them know that there's no action on their part that's required. This is exciting news. It's good for Citi, it's good for Morgan Stanley, and it will be good for them as well.

Independent experts agree that there's no time pressure here. The joint venture has to clear regulatory hurdles, so big changes are a good six months away. But that doesn't mean you should sit still. Brad Hintz is an independent analyst at Sanford Bernstein and a former partner at Morgan Stanley.

Brad Hintz: It's a time to ask yourself the question, where does my loyalty lie? So in other words, do you feel like a Citibank customer, or do you feel like you're a customer of Bob Smith, your broker?

Hintz says most people's loyalty is to their broker, not to their brokerage firm. And he predicts a lot of turnover among brokers in the coming months.

Hintz: Typically when you have a merger, retail brokers find that their office has been shut down, what they're paid for executing a trade may change, their boss may be fired. It's kind of troubling to see that going on, and so they may move to another firm.

This is an industry-wide issue. Other brokerages are in the midst of mergers as well. Wachovia bought AG Edwards last year, and Bank of America bought Merrill Lynch on Jan. 1.

Hintz: We've shuffled the deck here, and you're going to see a lot of brokers moving back and forth.

Hintz says 70 percent of client assets will move with a broker that jumps ship. To head that off, brokerage firms often pay fat bonuses to financial planners who stick around. The Morgan Stanley Smith Barney joint venture will be a behemoth. It will have 20,000 financial planners in 1,000 branch offices worldwide. That could mean new products and services for current clients. Hintz recommends you call your broker and ask a few tough questions.

Hintz: Here are the products that you sold me in the past. Is there anything that's cheaper or better? Is the fee that I'm paying in terms of a separately managed account, can that fee be lowered?

Morgan Stanley's Jim Wiggins says his firm will go out of its way to keep its customers happy.

Wiggins: At the end, this is a relationship business. You want someone who you trust managing your money.

The good news is Morgan Stanley has nowhere to go but up. Forrester Research has ranked Morgan Stanley at or near the bottom for customer service three years running.

I'm Dan Grech for Marketplace Money.

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So, this whole article comes down to two "tough" questions--any cheaper products and can fees be lowered? Nothing more than this? I have been with Merrill-Lynch for about 10 years and was worried about the impact of their buyout by Bank of America. Basically, what can one really do? No one really knows what the future holds, so it comes down to "Do I like/trust my manalyst/broker?" There is not a whole lot to base a stay/change decision on. Up market decisions are easy, down market decisions are much more stressful. So, this whole topic is nebulous and one just has to have faith.

Bob Tannehill

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