Morgan Stanley plans to tease more wealth management clients out of its retirement and self-directed accounts by piecing together what the firm calls the "financial DNA" of each customer.
An in-house technology effort dubbed "Project Genome" uses data analytics and fintech partnerships to fine-tune the personalization of offerings to clients in the bank's workplace and E-Trade channels, Morgan Stanley co-president and head of wealth management
Anthony Bunnell, head of retirement for the Morgan Stanley at Work unit, said in an email that the bank has a "commitment" to using "technology solutions to help propel the growth and evolution of our workplace strategy and retirement solutions business."
Project Genome launched on Feb. 1, a company spokesperson said in an email, but its arrival was relatively quiet. The bank referred to
Historically, the financial services and wealth management industries have looked at clients "through segmentation, which is a very rudimentary way of thinking about a client," Saperstein said in the investor presentation. "Just broad brush strokes." Segmentation divides clients into tiers of services based on metrics such as the size of their assets and the level of complexity of their portfolios. Those rough measures have meant that potential clients in other units of the bank have slipped through unnoticed when instead they could have been sold new products and services.
Saperstein described Morgan Stanley's effort as "thinking about each individual client as an individual genome … individualized DNA." With 16.5 million client relationships — a number he said is "growing very quickly" up from only 2.5 million two years ago, mostly added from the workplace and self-directed channels — it's critical to offer a personal touch early. Times of market swings, like now, may be the perfect moment for winning more business out of those clients, he said.
"A lot of clients consolidate their assets with Morgan Stanley" during periods of volatility, he said, adding that those with external accounts "don't feel like they were fully prepared for this type of a market... clients who weren't getting advice during periods of low volatility "are looking for an advisor."
In the case of workers with corporate stock plans the firm manages, "the actual assets that these investors have when they become full-service clients [at Morgan Stanley] is somewhere in the neighborhood of nine or 10x what the assets were" that were vesting, Saperstein said.
Morgan Stanley is also seeking to fill out its wealth management strategy by growing aggressively in retirement solutions, institutional consulting and family offices, Saperstein said.
The $10 trillion question
Wealth management, once in the backseat at Morgan Stanley, has become the firm's rainmaker
The bank's advisor-led channel topped $3.4 trillion in client assets by the end of the second quarter of 2022, but its workplace and self-directed channels had $1.1 trillion in customer holdings, $323 billion of which was unvested, according to the firm's most recent earnings report. The company is betting that its technology will enable advisors to convert more of the 7.8 million self-directed households and 6.1 million corporate stock plan participants into clients for more lucrative financial advisory services as their wealth grows.
The Citi analysts wrote in their report that as of the first quarter this year, Morgan Stanley had $4.8 trillion of client assets, second only to Schwab's $7.9 trillion. In its
Calling Morgan Stanley "the most valuable business within our universe" of wealth management due to a combination of "superior returns, low risk profile, and above average growth," the analysts noted that the firm had led on tech for years by investing early in efforts to integrate all its data systems into one platform. "MS has long held the view of the importance of best in class technology as an enabler for how its advisors deliver advice as well as find ways to free up their time," the analysts wrote, and it "continues to pay dividends."
While personalization at scale "is often talked about as a longer-term vision," the Citi authors said that "we have not seen [it] effectively used in practice in financial services since it is very challenging to accomplish." But they were optimistic about Morgan Stanley's plan, given the strong technology unifying different programs and its current position as a leader in several areas.
"Consolidating assets held away from MS, which is roughly $10 trillion as of 1Q22," would be a "significant growth opportunity" if the firm is careful with execution, the Citi report said, noting comments from a Morgan Stanley executive that capturing the entirety of assets from a workplace client can take two to three years.
By assessing each data point a client leaves behind, the bank can use
Over time, he said the data-sequencing strategy here, which will complement the bank's Next Best Action AI software helping advisors suggest tailored financial products in the advisor channel, will become "a much bigger portion of our growth in our new assets. We're only in the early stages of learning how to think about clients in this genome-type concept."
Fintechs: partners, not purchases
The bank's approach of targeted mass marketing is "much more typically thought of in the world of technology," Saperstein said. That's why Morgan Stanley has hired significantly from outside the industry for roles in this campaign, he said.
In recent years, the bank went on a buying spree,
"We don't need to buy technology organizations," Saperstein said during the presentation, in response to an analyst's question about acquisition plans. Morgan Stanley instead prefers to solicit partnerships with fintech or tech firms to build tools that blend well into the company-wide system, for ease of use among both clients and advisors, Saperstein said.
New York-based fintech Vestwell, an online retirement plan recordkeeper serving small businesses and individual savers, is one such partner. CEO Aaron Schumm said in an interview that he observed Morgan Stanley "getting out in front of players" in the wealth industry with such partnerships recently, especially when it came to certain "underserved" groups like small businesses.
For the most part, small "employers have not been given the ability, the flexibility, to offer a savings solution to their own employees in a cost effective, flexible way," Schumm said, adding that legacy technology "didn't allow them to service their clients appropriately."
However, when Morgan Stanley partners with Vestwell to address this underbanked group, and uses similar partnerships to reach other businesses, it puts the bank in front of corporate employees who could become future clients in its financial advisor channel.
In that respect, "there is a large first mover advantage in this space," Schumm said.
Keeping talent happy
Saperstein's presentation remarks came a few days after the
Retirement websites and apps are
With Morgan Stanley's portal, "plan advisors no longer have to rely on external resources and tools to manage their retirement books given most of the business is held-away at our recordkeeping partners," Bunnell said. Instead, advisors can see all of a client's retirement plans with different providers in one place. "Across the retirement industry, retirement planning and saving is a topic where both plan sponsors and participants need help," Bunnell added.
Morgan Stanley's aggressive tech upgrades and investments in user experience are also a strategy that has won points with advisors.
In a year when other wirehouses have so far lost advisors to smaller competitors or independents, Morgan Stanley stands out as a rare big firm with a net gain of 87 advisors, according to industry recruiting consultant Jason Diamond.
"They do have an outstanding platform," Diamond said of Morgan Stanley, in an interview. "Certainly in terms of technology and investments, they're right at the forefront."
