Do Bank of America and the Smith Barney-Morgan Stanley deal validate wealth management?

The retail wealth management industry is not the next subprime-like growth opportunity or anything. But it represents a solid market over the next few years, and at a time like this that's saying a lot. All the confirmation we need is right in front of us: Bank of America's deal for the Thundering Herd of course, and now Citi's move to sell a controlling stake in Smith Barney to Morgan Stanley, which would create a similar wealth management juggernaut.

Now this is not to say this will prove an immediate home run for either company. Sanford Bernstein analyst Brad Hintz has told clients that a retail recovery will likely lag an economic recovery, while institutional securities business lines will lead it.

Still, it's an eye-catching move--and one that many will applaud. If only because it sets up a big-name challenger to Bank of America. We're right back to being in a two-horse race. It's as if John Mack took a look at the looming Bank of America juggernaut and said, "We've got to do something."

According to Investment News, the Smith Barney-Morgan Stanley combination would encompass 23,000 registered representatives and advisers with $2 trillion in assets. Bank of America, by dint of its deal with Merrill Lynch, has 20,000 financial advisers with $2.5 trillion in assets. So this could be quite a race.

Both companies have a lot of work to do, Hintz noted in his report that Wachovia encountered some server integration issues when it bought Prudential and AG Edwards. There may be some issues at the cultural level. Bank of America is working hard to put the well-publicized rifts behind them, following a major campaign to retain big producers. Smith Barney-Morgan Stanley may have to face similar rifts.

And then there's the issue of broker defections. At a minimum some advisors will likely ponder the independent route. You can bet there's a lot of recruiting going on right now. But no matter how this shakes out, it's clear that high-end wealth management remains an industry of focus. All top firms will want a presence. - Jim