A Morgan Stanley spokesman said "wealth management is an important part of a long-term revenue diversification strategy built around complementary businesses focused on global capital formation and investment. You don't change your strategy every 13 weeks."

Despite the tough business environment, the company spokesman said Morgan Stanley has no plans to back down from its goal of acquiring 100% of the brokerage tie-up over time.

To be sure, Morgan Stanley is in the same boat as all of its major competitors--including Goldman Sachs Group Inc.--as volatile equity markets have dried up demand across its business lines. Retail investors, in particular, have reined in trading, putting less cash to work. Historical trends show there is no guarantee that these clients will return any time soon.

But, analysts are looking for signs of progress at Morgan Stanley Smith Barney. Since the investment bank acquired a 51% stake in the joint venture on May 31, 2009, the current third quarter represents the first comparable period to a year ago. Another potential quarter of asset outflows would be a setback for the business.

Credit Suisse analyst Howard Chen says he's looking for pretax profit margins in wealth management to remain depressed in the third quarter, but said he does expect a "meaningful expansion in the range of 15%-20%" in 2011.

Morgan Stanley has beefed up its trading operations with several hundred hires over the past two years, which boosted its overall profits and helped it beat out Goldman's earnings in the second quarter.

But company watchers say such the result isn't likely to repeat itself on a regular basis and instead, peg future growth to the wealth-management business that's made up almost entirely of the joint venture.

Anton Schutz, president of Mendon Capital Advisors, which owned 75,000 Morgan Stanley shares as of March 31, said the joint venture (which added 10,000 more brokers) is a "differentiator" and will allow the firm to "place [more] stock in retail hands, and make winning deals easier to do."

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