The criticism of Morgan Stanley Chief Executive Officer Philip Purcell, which burst onto the business pages earlier this spring, has been punctuated by a set of executive departures in the company's institutional businesses. But if Purcell ends up losing his job, it likely will be because of what's going on in his retail unit, not his institutional one.

Purcell has staked his career on the profitable marriage of the businesses: an investment bank that collects hundreds of millions of dollars in fees for underwriting stock sales each year, and a retail brokerage that serves as a ready-made distribution outlet for the bank's products. It is the sort of virtuous circle that consultants love to talk about, except for one thing: The retail brokerage hasn't profited from it. Brokers at Morgan Stanley, many of whom were part of the unit when it was still called Dean Witter, have production levels that trail their counterparts at Merrill Lynch and Smith Barney by hundreds of thousands of dollars.

"Dean Witter has not benefited from the availability of Morgan Stanley investment projects to the extent they should have," George Ball, the former president of Prudential-Bache Securities, said in a recent interview. Ball, now the president of financial services firm Sanders Morris Harris Group, says Purcell's strategy was solid, but that he should have addressed the problems of the old Dean Witter more forcefully.

Purcell is certainly trying to rectify that--along with the impression, brought about by a string of departures on the investment banking side, that the company is getting away from him. "We are the first to admit that the media frenzy of recent events has been disruptive to all of our key constituencies," he said last month at an investment conference. "The sooner we can move on and return our entire focus to the business, the better."

Purcell also admitted some failures in the individual investor group, notably the hiring spree of financial advisers that he embarked on from 1998 to 2000. But he said the morale of advisers within the unit was "solid" now that they knew Morgan Stanley wouldn't spin it off. Retail is "well on its way to where it needs to be," he said.

The numbers tell a less positive story. Morgan Stanley's brokers now generate an average of $462,000 a year in commissions, well below the $711,000 average at Merrill, according to Morningstar estimates. "There is still clearly headroom in assets per FA," Stephen Crawford, the company's co-president, said at last month's conference, according to a transcript provided by Morgan Stanley. The other new co-president, Zoe Cruz, said, "We believe in the power of the retail network to generate a high-quality earnings stream." Morgan Stanley didn't make any executives available for interviews for this article, though spokeswoman Andrea Slattery responded to a written list of questions.

The low production levels have contributed to profit problems in Morgan Stanley's retail unit, which is formally known as the individual investor group. Last fiscal year, IIG had a profit margin of 8%. Smith Barney's and Merrill Lynch's comparable businesses had margins of 22% and 19%, respectively.

"He's got to increase the profitability of the financial advisers," Morningstar analyst Megan Crow says of Purcell. "The problem is he only has 10 months to do that until the shareholders meeting, and if he doesn't improve things he may be out of a job."

It's ironic that Purcell's biggest problems would be with the old Dean Witter, which Purcell was instrumental in acquiring when he was at retail giant Sears Roebuck and which he has overseen for the better part of two decades. After it was bought by Morgan Stanley in June 1997, though, the retail brokerage was quickly cast in a supporting role with Morgan Stanley's bankers front and center.

"It was a cultural thing that started at the merger," executive recruiter Danny Sarch says. "Morgan Stanley bought the most pliable, the Sears guys, and they felt they would sell what we want them to sell."

Those brokers quickly came under pressure to push mutual funds managed by Morgan Stanley. Eighty percent of the funds sold by Dean Witter in 1998 were proprietary, according to Cerulli Associates. Worse, many of the funds were below-average performers in their categories. The underperformance may not have prompted clients to leave, but it did put Dean Witter brokers in the awkward position of having to push funds that weren't in the best interests of customers, says Morningstar managing director Don Phillips.

Morgan Stanley's bias toward in-house products created a culture that kept some brokers from realizing their full potential. Morgan Stanley has "the dumbest brokers in the industry," a frustrated annuities executive complained to a reporter for this magazine in 1999. "They treat their brokers like mushrooms: They feed them s--- and keep them in the dark."