Morgan Stanley broker chief sees no Dodd-Frank hit

NEW YORK (Reuters) - Morgan Stanley Smith Barney President Charles Johnston played down the financial regulatory reform law that cleared Congress on Thursday, predicting the historic set of new rules will not make the world's largest brokerage any less competitive.

The sweeping Dodd-Frank Law overhauls market and banking rules. Investor advocates' attempts to impose the same fiduciary standard that applies to financial advisers on brokers were watered down during debate. As it stands, the SEC may impose new rules on all individual investor advisers after a six month study.

Yet industry executives expect brokers ultimately will be held to higher standards of care than in the past.

"We're all going to be treated the same. Ideally anyone in our business is going to have the same set of rules and regulations," said Johnston, speaking on the sidelines of a Securities Industry and Financial Markets Association (SIFMA) regulatory conference.

"I don't see that having any impact at all," he added, referring to Morgan Stanley's ability to compete against other wealth advisers. Johnston spoke a few hours after Congress approved the reform legislation and sent it to President Barack Obama to sign into law.

That said, everyone from the brokers on the Street to the executives in their offices are not sure what the final shape the new rules will take. SIFMA, the brokerage industry's lobbying group, intends to seek a fiduciary standard that varies according to the various activities conducted by firms.

Investment advisers, on the other side, want brokers held to the same tough standards designed to minimize conflicts of interest.

"There is no question the world is going to change," he said. "The common theme I've heard from regulators and people in Congress is if you want the flexibility to do some of things you want to do -- like principal trading and proprietary products and concentrated positions and the new issues business -- all of which are important to our clients, there's got to be more accountability."

Johnston, who manages a brokerage with nearly 18,000 financial advisers, added "The real unanswered question is what is the definition of that accountability?"

Brokers have contended that investment advisers, beholden to a tough do-no-harm standard, do not offer many of the services or products investors want, such as IPOs.

Johnston, speaking about his own firm, said attrition among the top producers remains at record low levels. Thousands of Smith Barney brokers had quit in the six months after Morgan Stanley and Citigroup announced their Smith Barney brokerage joint venture, but attrition has stayed below 5 percent since the deal closed in June 2009.

(Reporting by Joseph A. Giannone; Editing by Phil Berlowitz)