Morgan Stanley’s wealth manager is operating much differently than it and other giants of the industry did in CEO James Gorman’s first 30 years in the business, he said.
After acquiring a massive retirement plan consulting firm with $43 billion of fee-based assets across 600,000 participants, Morgan Stanley’s wealth management unit is expanding to the tune of $311 billion in net new client assets this year, the firm said in disclosing its third-quarter earnings on Oct. 14. Besides the rising equity values benefitting all wealth managers, Gorman credits
The business has shifted from “a defense and attack model of, ‘Keep your people and try and get some of the marketplace’” to a strategy that is “set up to have multiple channels of growth in the years ahead,” Gorman said in an earnings call with analysts,
“We used to have a very monolithic model for asset gathering,” Gorman said. “You had existing clients who maybe brought new money to you from other institutions or accumulated wealth, they also spent well. So that would go up and down. You had financial advisors who left and who you recruited, and for many years we were net deficit of financial advisors as were frankly most of the broker-dealers in my 30 years of doing this. A couple of years ago the net deficit changed materially for us. We are seeing net positive attrition, very few advisors leaving and significant advisors coming, in particularly large teams from across the street and the banking industry.”
New acquisition: Gorman was responding to a question about the firm’s
Client assets: Advisor-led client assets jumped 32% year-over-year to $3.65 trillion, with fee-based AUM surging upward by 31% to $1.75 trillion. Due to the acquisition and organic growth among advisors’ practices, fee-based asset flows nearly tripled to $70.6 billion in the quarter. Across the whole wealth manager, net new assets climbed 160% from the year-ago period to $134.5 billion, with client assets increasing by 62% to $4.63 trillion. The unit also had its fifth straight quarter of providing at least $6 billion in loans, with a balance at the end of the period of $121.2 billion. The loan balances rose by a third from the same time a year ago.
Recruiting: While Morgan Stanley no longer discloses its exact number of brokers, Gorman spoke at length about the positive gains in the data he said he examines “every Friday night at about 7:15.” The firm has “very big teams coming in,” and it’s no longer losing as many advisors to competitors such as other wirehouses, RIAs, private banks or independent firms like LPL Financial, Gorman said. “Do you want to take a book of several billion dollars to a firm that is not a global leader in the equities markets and is not a global leader in underwriting? I don’t think so,” he added. “So we’ve got a huge competitive advantage by having such a world-class investment bank, which feeds the advisors, plus the research which we amortize across the cost of all the three platforms, enables us to invest more in research than you do if you’re just a wealth shop or you’re just an institutional shop.”
Bottom line: The wealth manager generated pretax profit of $1.53 billion on net revenue of $5.94 billion, a margin of 25.8%. The income grew 37% year-over-year, the revenue increased 28% and the margin was up by 180 basis points. Asset management revenue reached a record $3.63 billion for the quarter as well.
