Morgan Stanley Sells E*Trade RIA Custody Unit for $55 Million
Morgan Stanley, whose executives have expressed ambivalence about custodying assets for independent advisors, confirmed its lack of interest Tuesday with its decision to sell E*Trade Advisor Services.
The move comes after a Morgan Stanley wealth management executive told AdvisorHub last week in discussing the company’s first quarter earnings report that the RIA custody business is “really not something that fits directly into our model.”
Publicly-traded Axos Financial, the holding company for consumer bank Axos Bank and a broker-dealer clearing business, Axos Clearing, is funding the $55 million cash purchase price with existing capital, according to the announcement. The transaction is expected to close in the third calendar quarter of 2021.
Axos Financial president and CEO Greg Garrabrants said in a prepared statement that the acquisition “significantly accelerates our time-to-scale” in the RIA custody business.
“We intend to leverage EAS’ turnkey technology platform and Axos Clearing’s capabilities to expand the service offerings to independent registered investment advisers and turnkey asset management program managers,” he added.
Garrabrants also said that he expects the deal to add 5% to Axos Financial’s fiscal 2023 earnings per share and that it should take about three years for the company to earn back any dilution to its tangible book value.
Morgan Stanley executives in February of last year, when the firm’s $13 billion-deal for E*Trade was announced, expressed concerns about creating channel conflicts between captive brokers and external RIAs who compete for the same clients. They also championed the potential for its own brokers to receive referrals of wealthy E*Trade clients seeking full-service advisory relations rather than RIAs who had previously been fed those leads.
Morgan Stanley Chief Executive James Gorman referred to the RIA custody at the time as “relatively small” but “interesting.” Gorman last week said that the wirehouse is focused primarily on capturing more of the self-directed consumer market, referring E*Trade customers and its corporate stock plan services participants to its full service brokers.
A spokesperson for Morgan Stanley declined to comment on the transaction.