Morgan Stanley Looks to Shed Wirehouse Comparisons, Take on Schwab
Morgan Stanley no longer wants stock market analysts or shareholders to pull up only Merrill Lynch, UBS, or Wells Fargo—its traditional three wirehouse rivals—when evaluating its performance, according to CEO James Gorman and the leader of its wealth management unit Andy Saperstein.
“I think we’re going to be compared, over the next five years, much more to a certain West Coast, direct player that’s done a phenomenal job,” Gorman told an online audience today during the Morgan Stanley U.S. Financial, Payments & CRE Conference.
“The wirehouse comparison is too narrow because our business model and our performance are clearly different,” Saperstein, who was recently elevated to co-president of Morgan Stanley and heads the wealth division, said prior to Gorman at the firm’s conference.
“Our aspiration is to be the wealth manager of choice for every investor, regardless of their age, stage of life, channel preference or level of wealth,” Saperstein said, referring to his firm’s advisor-led, direct investment, and workplace platforms.
Morgan Stanley has begun prevailing in its race with direct wealth management platforms, Saperstein argued, comparing its 10% growth in annualized net new assets, versus Schwab’s 9% cited for the first quarter of the year.
A Schwab spokesperson did not return a request for comment on Morgan Stanley’s remarks or the growth statistics it cited.
Recent asset growth trends justify wirehouses chasing Schwab and others’ self directed platforms’ performance, according to recent analysis by Cerulli Associates, which said that advisor-managed market share by assets had a compound annual growth rate of 6.7% from 2014 to 2019, while self-directed segment AUM grew at a rate of 11.5% annually over the same period.
But the business strategy to compete with Schwab and other direct platforms also has boosted Morgan Stanley’s advisors’ fortunes and assets, Saperstein and Gorman said.
Since the pandemic began in 2020, roughly half of Morgan Stanley’s advisor teams have grown their client assets by more than $100 million, and more than 50 teams have added more than $1 billion, according to Saperstein.
The firm’s advisor recruiting efforts are also booming, Gorman said, notably speaking at the same conference where Andy Sieg, head of its rival wirehouse Merrill Lynch, reaffirmed his firm’s commitment to home-grown talent in place of more expensive veteran broker recruiting.
“We are net positive every single week,” Gorman said about the firm’s addition of brokers. “It’s not because we’re paying souped up deals. It’s because the platform is working.”
Recruiters, however, have said that since reviving its recruiting efforts over the past year-and-a-half, Morgan Stanley has been dangling deals over 300% of their annual revenues to top broker teams. That’s competitive with high-end bonuses being offered by Wells Fargo Advisors, Rockefeller Capital and other aggressive recruiters, they said.
Saperstein also noted in his presentation that Morgan Stanley’s advisor attrition rate to the competition is around 2%, down from around 4% in 2015. (Senior Merrill executives said in January that its attrition rate hovers around 4%.)
“We used to have high attrition, no attraction, no technology, no E*Trade, no workplace,” Gorman said. “We figured all those out.”
Morgan Stanley also outpaces its wirehouse rivals in its internal growth of new assets, even when taking out market appreciation and the assets it acquired through its E*Trade acquisition in the fourth quarter last year, according to Saperstein.
The other three wirehouses’ total client assets grew more than 30% in the past three years, and therefore reflect only market appreciation, while Morgan Stanley’s rose by 49%, excluding the E*Trade assets, Saperstein said.
But to be sure, Morgan Stanley is not alone in its multi-channel pursuit of client assets, particularly since Merrill Lynch’s parent Bank of America has captured significant shares of the advisor-led, direct investment and workplace channel markets in recent years.
“We meet the clients’ needs across the channel around investment solutions, self-directed digital advice, full-service advisor and team-based advisor,” Kathleen Knox, president of Bank of America Private Bank and a member of the bank’s executive management team, said speaking at the same conference, prior to Saperstein. “And we maintain a leadership position in all of those segments and just remain focused on capturing the significant growth opportunity, both internally and externally.”
Saperstein said that its growth strategy going forward will rely on aggregating a greater share of the $8 trillion in assets its clients held away across all three of its wealth channels, Saperstein said.
“The key to success is to learn all we can about them,” he said of the clients in all channels that have not committed 100% of their assets to Morgan Stanley.
The firm will use machine learning technology to both “anticipate” those clients’ “needs” and to further develop a lead management platform, known as LeadIQ, that will help Morgan Stanley choose who among 1,500 pre-selected advisors get referrals from its self-directed and workplace channels, Saperstein said. The machine learning software will prioritize advisors based on such factors as their historical close rates with clients, Saperstein said.