Retained Advisors Account for Bulk of Morgan Stanley’s Net New Asset Growth, Execs Say
Retained advisors adding new clients and consolidating existing client assets have fueled the “vast majority” of Morgan Stanley’s net new asset growth, according to two executives. That’s true even though the wirehouse eventually expects its self-directed and workplace channels will contribute significantly to inflows, the two executives said.
For the first six months of the year, however, the firm’s net new assets have climbed to $176 billion, representing an annualized 9% growth rate, Morgan Stanley executives stressed.
Notably, it’s not the self-directed and workplace channels, or even newly recruited advisors, who get credit for adding the bulk of Morgan Stanley’s net new assets, one of the two senior wealth management executives, both of whom asked not to be named, told AdvisorHub on Thursday.
Instead, existing advisors are responsible for the growth, by attracting new clients and persuading existing clients to add to their positions, they said.
Advisor-led client assets increased 6% from the prior quarter and 38% from the year-ago quarter to $3.5 trillion, the company reported.
In recent months, Morgan Stanley has reinvented its business model with its acquisition last year of E*Trade Financial. Since then, James Gorman, the bank’s chief executive, has frequently highlighted the notion that the self-directed platform, along with a bolstered workplace channel, are creating strategic portals through which his enterprise will attract new client assets.
Gorman hit that note again Thursday, telling stock analysts on a conference call after the bank reported its second quarter earnings that Morgan Stanley has built a new “mouse trap.”
“We’re creating an advisor channel, which actually has deep, organic growth levers. You combine that with having the direct platform and a workplace platform and you’ve got three legitimate channels pouring assets into the house,” Gorman said. With E*Trade and its workplace channel, the firm has developed 13 million relationships in its wealth management unit, he said.
Overall, the wealth division’s pre-tax margin, a key reference Gorman uses to benchmark performance, held steady at 27%, up from 24% in the year-ago quarter, the company reported. Net revenues rose 30% year over year to $6.1 billion, and pre-tax earnings were up 43% to $1.64 billion, the company reported.
The wealth division managed $4.5 trillion at the end of the second quarter across its advisor-led, self-directed and workplace channels, an increase of 7% from the prior quarter and 71% from the year-ago quarter, the company reported.
Morgan Stanley’s self-directed assets increased 13% sequentially to $993 billion, with no comparison available for the year-ago quarter since that was prior to the October 2020 completion of its E*Trade purchase, the company reported. The self-directed channel now has more than 7.4 million households as clients, Sharon Yeshaya, Morgan Stanley’s new chief financial officer, told stock analysts on the Thursday call.
But the integration of all three channels is still underway and not completed.
The firm expects to continue this year to knit together its advisor-led and self-directed platforms, so clients may–with a single sign-on–access assets in either of those accounts, the two executives who spoke to AdvisorHub said. “We’re kind of rolling that out as we speak,” and the launch will be complete by the third quarter of this year, forecasted one of the two.
Morgan Stanley’s workplace channel clients will all eventually have seamless access to accounts on the other platforms as well, but that is not true for 50% of them now, and likely will not be true for 90% of them until the back half of 2022, according to Yeshaya.
But despite any delays for the final integration of it three wealth channels, Gorman remains confident that Morgan Stanley has set up a future that will turn the page from recent years when his wirehouse, like its rivals, “struggled” to stop outflow of assets to robo-advisors and independent channels because of “poor training and very high attrition,” he told stock analysts.