Raymond James Financial (NYSE:RJF), Morgan Stanley (NYSE:MS) FBR's Leading Retail Broker Picks

With capital markets expected to improve in 2011, pure investment banks may be eyed more by investors, but FBR believes the ongoing environment still works in the favor of retail brokers, and their favorite picks in the sector are Raymond James Financial (NYSE:RJF) and Morgan Stanley (NYSE:MS).

FBR said, "With an improving economic environment, lower equity and fixed-income market volatility, and increasing clarity regarding financial reform measures, we expect the broker/dealers

to benefit from better capital raising and M&A activity in the coming year. While volatility will likely result in lower institutional trading volumes and risk premiums for fixed-income market makers, more stable valuation levels bode well for retail trading activity. Our positive outlook throughout 2010 rested on the theme of better capital raising and M&A activity offsetting the negative impact of lower risk premiums and trading volumes for

fixed-income securities. While that theme largely played out, we are still waiting for a meaningful rebound in M&A activity, although the stage is set. In terms of fixed-income trading, which drew less attention in 2010 than in 2009, but remains as a very important revenue driver, risk premiums widened slightly this year, although they remain near pre-crisis levels. Better year-over-year volumes from swap trading reforms and less market dislocation may serve as an offset to lower trading gains. Heading
into 2011, we continue to recommend retail brokerages over more pure-play investment banks, with our favorite two names being Raymond James Financial Inc. (Outperform) and Morgan Stanley (Outperform)."

Raymond James closed Friday at $31.46, up $0.34, or 1.09 percent. Morgan Stanley ended the trading day at $26.95, up $0.24, or 0.90 percent.