Morgan Stanley Head of Wealth Management Jed Finn thinks his division could hit its operating revenue goals practically overnight if it simply stopped investing in itself.
Morgan Stanley's $6 trillion wealth unit has long had a goal of hitting a 30% operating margin — meaning just under a third of its revenue will be left over once all the expenses have been subtracted. That margin inched upward again in the firm's third quarter to 28.3%, from 27% in the previous period.
Finn, who moved into his current position
"And you know what?" Finn said. "We would have a couple of quarters of really great results. And then other people would start to catch up to us in terms of the types of capabilities that they could deliver to clients. And it would be a very short lived success-slash-victory lap."
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Morgan Stanley is instead seeking to differentiate itself by spending money to continue improving its trading systems, achieve greater efficiency through the use of artificial intelligence and other technologies and give clients
So rather than squeezing more out of the operating margin by cutting costs, the wealth unit achieves its goals by boosting revenue.
"It's really about serving our clients more effectively than anybody else can and having that drive net new assets," Finn said. "Those assets convert into fee-based accounts. Those fee-based accounts generate recurring revenue. That revenue generates [profits before tax], and the PBT accretes to the margin. And so our margin is really more of an output of our growth than something that we're trying to solve."
That puts Morgan Stanley's operating-margin goal right in line with another objective first named under
Finn was appointed head of wealth management about 10 months after Gorman handed his chief executive mantle to current CEO Ted Pick. Before that promotion, Finn had served as chief operating officer of the wealth unit for about eight years. He came to the firm in 2011 from the consulting giant McKinsey.
Finn recently sat down with Financial Planning to discuss how he and his colleagues are working toward Gorman's goals, how Morgan Stanley plans to keep assets flowing in and how AI and other innovations are helping to cut expenses and save time.
This conversation has been lightly edited for brevity and clarity.
Financial Planning: James Gorman has obviously left a huge mark on Morgan Stanley. Do you see your job as continuing along the path that he blazed? Or do you plan any major departures?
Jed Finn: The fundamental strategic shift that James made for Morgan Stanley was correctly identifying the importance of wealth management as a driver of the business, No. 1, and correctly identifying that to be successful in a wealth management business, you need scale.
Now we've got E-Trade for self-directed clients. We've got a robo for clients who want that. We have our advisor channel, we have our [private wealth advisors], we've built out our family office capabilities, and we have
So I think the general architecture is set. We have this whole notion of building an infrastructure to
Another business that we've launched recently is our family-office offering, where we've built a highly bespoke infrastructure that helps the highest net worth families in the country manage the complexity of their overall day-to-day operations.
A third example that I could point to is
A huge part of our strategy is: How do we build relationships with people before they accumulate wealth? So that, when they do accumulate wealth, they are already clients.
FP: Do you look around the financial services world today and think you see firms trying to steal a page from Morgan Stanley's wealth management playbook?
JF: Wealth management is a phenomenal business. As long as you're serving your clients effectively, their assets are going to grow.
So you can see the interest not just from our competitors, but you can also see it in terms of
I think the transformation at Morgan Stanley has just put it in Technicolor, so to speak — that wealth management can really move the overall value of an organization. But the attractiveness of wealth management didn't start with Morgan Stanley. I think, for a long time, people have recognized that it is a valuable part of the world to operate in.
FP: What do you think differentiates Morgan Stanley most from its direct competitors in the investment banking world when it comes to wealth management?
JF: I think what is unique about Morgan Stanley versus everybody else is we are the only large-cap bank where wealth management is around 50% of the revenue. And so when you listen to
So from a resource deployment perspective, it just isn't as high there as it is here. When we're spending money on differentiated products, when we're spending money on differentiated trading systems, when we're spending money on
They not only keep their assets here, but they bring more. Which is why, if you look at our growth trajectory versus everybody else's, it is meaningfully higher.
FP: How big of a role does recruiting play in bringing in new assets?
JF: Recruiting is an immaterial contribution to our overall growth, and we are very selective with who we bring on board. We're not out there trying to bring in anyone to Morgan Stanley, and we are not the highest payer in the market.
We do selectively add teams we think will be a good fit. And when we say we think will be a good fit, that means people who want to grow their businesses at Morgan Stanley and leverage all the resources that we've invested in.
One of the key elements of the social contract that we have with our financial advisors is we ramp up investment, we build differentiated capabilities. What they do is guide us on how to make that investment. If we built it and no one came, this whole thing would fall apart. But luckily, that is not the case.
One of the things we've said publicly, and we've shown it with numbers, is there is no single growth lever. If you look at retail, institutional, existing clients, new clients, what we've done in the family office space, what we do in the funnel through the workplace, there is no lever that's greater than 25% of the whole. And the thing that we are least focused on, candidly, is recruiting.
FP: How would you describe the general competition for advisors these days?
JF: You're starting to see a bit of a reescalation in the size of deals. And that might be a number that doesn't make sense for us, but it might make sense for other firms, because that's the only way that they can attract advisors.
We have decided to take the delta between what we pay and what everybody else pays and invest it in a platform that serves all of our existing advisors. We are much more focused on "How do we have our best existing advisors serve their clients more effectively?" than on bringing in new clients.
FP: How is Morgan Stanley
JF: We have an exclusive partnership with OpenAI [the maker of ChatGPT]. We're the only financial services firm that works with them directly. Everybody else has to go through a third party.
We are using OpenAI's algorithm, GPT, to underpin our program called AIMS [AI @ Morgan Stanley] Assistant. Think of it as a bot that can find any information on our platform from research content. So, what was the price target of Google versus Apple over the last 10 years, and how has that changed?
It can query all of that. But the whole model is premised on predicting the next fragment. It's not based on reading somebody's compliance manuals. And so we have to be very careful that when we train the model on all of our content and it provides a response to an advisor, it can actually source where it's getting that response. And so it requires a different implementation methodology than GPT in the wild. And we would not have been able to do it in a compliant way without the partnership of the engineers at OpenAI.
Then we can go to the next wave of what we released, which is called AIMS Debrief. This is saving double-digit hours a week for advisors by listening to conversations and then writing up an email that they can send to clients and have the notes go into Salesforce.
We have next AIMS Plus, which is essentially ChatGPT for Morgan Stanley employees. And then we're using the algorithm in a lot of different places in our operational plan to drive efficiency and help with things like document production.
FP: How often are you having to back over emails and documents written by AI to correct for errors or mistranscriptions?
JF: Let's take as an example AIMS Debrief, which is the thing that listens to a Zoom call and then writes notes. It doesn't directly send something to the client, but it populates a draft email that says: "Dear Mr. or Mrs.: This is what we talked about. These are the next steps. You agree to X. I agree to this."
We'll follow up something like that. But advisors actually read the email to make sure they are comfortable first with what is being sent to the client. And what we've seen over time is that the number of edits has shrunk significantly. There's a huge percentage of advisors now who are just clicking "send." It's gotten so good at understanding what an advisor-client conversation is supposed to look like, they don't even have to make changes anymore.
