Morgan Stanley Net New Assets Hit Record $105 Billion in First Quarter
Morgan Stanley’s wealth businesses’ net new assets jumped 43% from the prior quarter and 185% from the prior year to $105 billion for the first quarter, the bank reported.
Overall, the wealth division’s pre-tax margin, a key reference Gorman uses to benchmark performance, rose to 27.9%, up from 21% in the year-ago quarter. Net revenues rose 47% year-over-year to $5.96 billion, and pre-tax earnings were up 52% to $1.60 billion powered by a recovery from pandemic lows and a boost from the E*Trade business.
The increases prompted Gorman to forecast that the division could see profit margins rise over 30% as interest rates tick up.
He also said he has given his team internally a target of $10 trillion in client assets across its wealth and institutional businesses, although he did not specify a time frame. Morgan Stanley managed $4.2 trillion in the wealth unit specifically at the end of the first quarter across its “advisor led,” self-directed and workplace channels.
“When we started the wealth management journey 12 years ago, we had $500 billion under management, now we have $4 trillion,” Gorman said. “And so we’re heading to $10 trillion. We’ve got all these growth verticals and I just couldn’t be more excited about it.”
The verticals Gorman flagged include: beefing up of its asset management arm with the Eaton Vance merger, which closed last month, new clients acquired through its E*Trade and Solium Capital and stock plan administration units–as well as asset gathering and recruiting in its traditional advisor channel, he said. He estimated Morgan Stanley would hit 4% to 6% annual growth in client assets, well above the annual growth rate typical of a wirehouse.
“Historically, the growth rate in the full service wirehouses has been zero to 2% over the last 15 years, with loss of financial advisors, some loss of assets into the RIA channel, and clearly loss to some of the direct distributors, and generally just not having in place significant growth plans,” Gorman said. “This quarter is reflective of a very different view of the wealth management business.”
The core advisor-led channel of around 16,000 brokers was still the primary driver of the $105 billion in net new asset growth. Assets in the channel rose 6% from the prior quarter and 44% from the prior year to $3.35 trillion, the bank reported. The wealth management businesses’ fee-based asset flows rose 54% from the prior quarter and 102% from the prior year to $37.2 billion, the bank reported.
In 2020, at least 700 Morgan Stanley advisors brought in more than $100 million of new money, according to two executives who spoke on condition of anonymity.
Morgan Stanley’s efforts to further integrate the E*Trade brokerage and corporate services business with its core advisor force is expected to yield additional customer growth. In 18 months, it is aiming for 90% of employees served under its corporate services unit to be set up with E*Trade self-directed accounts to hold proceeds from stock sales, up from 50% currently, Chief Financial Officer Jonathan Pruzan said on the earnings call.
The firm is also piloting tech tools and plans on developing even more that use artificial intelligence-enhanced technology to send customized leads from the stock-plan administration and E*Trade channels to traditional advisors, according to the two executives. Recipients are tracked and awarded new leads based on their ability to close referrals.
To get those referrals, the FAs must also meet Morgan Stanley‘s internally set eligibility requirements, including having clean compliance records.
Morgan Stanley is also using the possibility of referrals as a pitch for some high-end recruits as it continues to keep an eye on its net recruiting number (the total it brings in versus departures), the two executives said.
The firm recently scheduled online video meetings with 100 recruits, who heard altogether from its wealth management top executives, although they could not see each other, according to the two executives.
“We’ve been very active, and we’ve become a destination of choice,” Pruzan, the CFO, said about FA recruitment. “We’ve seen a higher level of a recruiting pipeline as we bring in FAs,” he said. The newly hired FAs “are obviously talking to their previous colleagues” and they persuade them to follow, Pruzan said. Also “attrition has dramatically slowed down,” he added.
Morgan Stanley exited the Protocol for Broker Recruiting and retrenched from hiring in 2017 but has aggressively revived its efforts over the past year and a half.
“The only reason not to recruit, is if it’s going to really anger the advisors that are here because you’re not delivering on your promise of providing a platform,” one of the two executives said, noting that a number of the new teams were joining because they wanted to partner up with existing teams already at Morgan Stanley.
Joint production agreements to share clients are easier to negotiate, despite geographical distances of participating teams, because of widespread remote working arrangement. “We’ve been really encouraged,” the same executive said.
In a sign of the shifting priorities at the firm, Morgan Stanley as of today’s first quarter earnings has ceased disclosing every three months an advisor headcount update. It reported 15,950 advisors at the end of last year, up from the prior year but including several hundred it added from E*Trade.
“Once upon a time, when we had just the core business, that sort of number of financial advisors and productivity per financial advisor, that’s basically the only two metrics you needed to follow,” Gorman said. “And now we’ve got like 30 different things that are bobbing along.”