Summertime has been anything but easy at Morgan Stanley. So far, new Chairman and Chief Executive Officer John Mack has taken dramatic steps to make the retail division of the nation's third-largest brokerage more profitable quickly. At press time, Mack was looking for a high-profile chief for the retail division just as the unit laid off at least 1,000 Morgan Stanley brokers on Aug. 11. The bloodletting took just hours.

On the day of the mass layoffs, one branch manager confirmed that he'd been instructed to let go brokers with eight or more years of experience who grossed less than $225,000 in production and those with between four and eight years who produced less than $150,000.

A week after Morgan Stanley Acting President Zoe Cruz said the firm would cut 10% of its nearly 10,500 brokers, branch managers were told to draw up lists of weak producers, says headhunter Danny Sarch.

But the large number of unemployed reps could be a boon to regional and independent-contracting firms. Tom Sboto, an executive vice president at First Allied Securities, says he'd be interested in reps who had grossed at least $150,000 at Morgan Stanley.

On the management level, Mack has seen the departure of the head of the Individual Investor Group, as well as its former chief. John Schaefer resigned in July, and his predecessor, Bruce Alonso, in August. Schaefer was to have left earlier in the year, but stayed on as the firm went through wrenching upheavals this spring. Cruz told employees the search for his successor could last into 2006. Until a candidate is named, the former No. 2 person at the group, Raymond Harris, is in charge. But front-runners for the top retail spot reportedly include two Morgan Stanley outsiders: James Gorman, Merrill Lynch's head of strategy and corporate acquisitions, and Mark Sutton, the chairman of UBS Americas.

Meanwhile, Morgan Stanley continues to face regulatory challenges. Last month, the firm agreed to pay a $1.5 million fine and reimburse clients $4.6 million for overcharging more than 3,500 customers in their fee-based brokerage accounts from 2001 through 2003.

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