While historic retail trading on E-Trade boosted Morgan Stanley’s
Axos Clearing, a subsidiary of online bank Axos Financial, has acquired E-Trade Advisor Services from Morgan Stanley for $55 million in cash. Axos Clearing will gain $23 billion in custodied assets from 200 RIA firms. The companies expect the transaction to close in the third quarter of 2021.
It’s a big win for the relatively small Axos Financial, which currently only has $14.4 billion across its consumer bank, clearing business and Axos Invest — the
“We intend to leverage [E-Trade Advisor Services’] turnkey technology platform and Axos Clearing’s capabilities to expand the service offerings to independent registered investment advisors and turnkey asset management program managers,” said Axos Financial CEO Gregory Garrabrants in a statement. “The RIA custody business is an integral part of our strategic plan, and adding a team of experts with decades of experience and relationships with the RIA community is something we highly value.”
The $1.2 billion in cash deposits on E-Trade Advisor will also provide low-cost funding for Axos Bank, Garrabrants added.
When Morgan Stanley acquired E-Trade for $13 billion in 2020, its key focus was establishing a referral program between E-Trade’s do-it-yourself investors and Morgan Stanley’s own financial advisors, according to a Morgan Stanley spokesperson.
“This shift created a natural inflection point to evaluate the RIA custody business we inherited, and ultimately we found a strategic buyer in Axos Financial,” the spokesperson said in an email.
The sale of the $23 billion is neither materially consequential for Morgan Stanley, which manages more than $4 trillion in global assets, nor unexpected, according to Devin Ryan, director of financial technology research at JMP Securities. But it does answer some lingering questions about the firm’s interest or appetite for getting involved in the RIA market, which is the fastest-growing segment of the wealth management industry, Ryan said in a note about the transaction.
“It was clear the business would not move the needle for Morgan Stanley and wasn’t a key consideration in the [E-Trade] acquisition, but it was viewed by some in the market as potentially providing longer-term optionality in the business model,” Ryan said. “So, on one hand we had viewed the small custodial business as an opportunity for Morgan Stanley to provide optionality for advisors that otherwise may leave the firm to become an RIA.”
“On the other hand, this would have represented an economically dilutive alternative, creating a channel conflict, and it was not clear if independent advisors would have wanted to be associated with a wirehouse firm which many had previously worked for.”
Firms custodying at E-Trade Advisor, which was rebranded from TCA after E-Trade acquired the custodian in 2018, have been
While some RIAs hoped to benefit from the Morgan Stanley name, now they will have to sell clients on the relatively unknown Axos Financial brand.
Axos Financial did not respond to requests for comment.
