The ink is barely dry on the mammoth deal that will bring together the former rivals Morgan Stanley and Smith Barney, and opinions are already forming.

The bombshell deal, which will create the largest global wealth manager by head count, will allow Smith Barney brokers to distance themselves from Citi's front-page problems, while also giving Morgan a superior technology platform. For Citi's part, it gets a much-needed infusion of cash, while also allowing it to maintain a minority stake in the joint venture, at least for the next few years, and the profits that presumably will come along with it.

However, it also presents some thorny issues. Even a superior technology platform will present a mammoth integration challenge. And the deal also will slow, at least temporarily, Morgan's drive for bank deposits.

The biggest question for advisors, of course, is about their compensation.

Show Me the Money

Just when it appeared that Morgan and Smith Barney brokers would miss out on the types of retention packages being thrown at the top producers of Merrill Lynch and, presumably, Wachovia, along came this joint venture.

James Gorman, co-president of Morgan Stanley and chairman of the new joint venture, was quick to confirm that there would be retention deals for both sides. In a conference call with analysts on Jan. 13, he said that the packages "will be structured attractively in line with industry practice." He added that he was confident the retention payments, along with the fact that there were now two less firms bidding for talent, would dissuade top brokers from considering going elsewhere.

Analysts at UBS estimate that the joint venture will pay $3 billion over seven years in retention payments.

Industry recruiters expect the retention deals to mirror those offered by Bank of America to Merrill's brokers. However, Bill Willis, of Palos Verdes, Calif.-based Willis Consulting, fears the change in the political environment may restrict the ability to be overly generous, particularly if the money is seen to come from TARP (Troubled Asset Relief Program) bailout funds. "It's hard to conceive that Democrats will approve of paying stockbrokers, who are perceived to be wealthy individuals, to stay at the firm," he says.

Even if the retention deal isn't up to par, brokers simply have fewer options if they want to jump ship. Chip Roame, the managing principal of Tiburon Strategic Advisors, predicts that eventually the big upfront recruiting deals will disappear, as a declining number of firms are left to chase the top talent. He also thinks this may send more brokers to the independent channel.

On that point, Gorman disagrees. In his conference call, he acknowledged the independent channel had posed a threat for many years, but the joint venture actually diminishes that threat because it offers advisors who stay greater product and technology capabilities.

Another wrinkle from the deal: Regionals are trying to capitalize on the disruption in the wirehouse world with their own growth plans, says Rick Peterson, a Houston-based industry recruiter. But Roame doubts how successfully regionals will be able to compete against the enormous scale of the Morgan Stanley Smith Barney business. "Regional firms with 500 to 1,000 brokers have to offer the same platforms and run advertising campaigns like Merrill and Morgan Stanley, but those firms can spread the cost over 20,000 brokers. Size matters," he says.

Cutting Costs

Most observers agree that Morgan Stanley got a good price for the unit, as Citi was not in a strong position to negotiate. However, Citi also will benefit from its stake in the venture, says Tiburon's Roame. "I think Citi's need is capital and this lets them participate in the upside. They get immediate capital and they get to participate in the synergies," he adds.

Willis notes that the deal also distances Smith Barney brokers from the negative press surrounding Citigroup.

Glenn Schorr, an analyst at UBS, said in a research note that this deal is in line with Morgan's goal of decreasing risk and increasing revenue from stable sources, such as wealth management. Schorr says that within a few years, Morgan may get half of its revenue from wealth and asset management. In addition, recruiter Steve Rosen says the deal gives Morgan access to Smith Barney's superior technology platform. "Morgan's Achilles' heel has always been technology," he says. "This weakness has just disappeared."

The challenge now for the combined firm is to comb through each product line and determine whose platform to keep. And this process will take valuable time and resources away from Morgan's effort to increase its retail deposit base following its conversion to a bank holding company last September. "This deal isn't a problem that you would choose to pick as you're searching for deposits, but it was too good for Morgan to pass up," says Alois Pirker, a senior analyst with Boston-based consulting firm Aite Group.