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Morgan Stanley client assets fall 3%, mirroring declines at rival firms

Market volatility hampered the performance of Morgan Stanley’s wealth management business, pushing revenue and asset levels down for the fourth quarter.

Rival firms Wells Fargo and Merrill Lynch also saw a downward trend.

At Morgan Stanley, net revenue for wealth management fell 6% year-over-year to $4.1 billion for the fourth quarter, according to the company which reported earnings Thursday. Client assets, at $2.3 trillion, were down 3%. Fee-based assets were flat from the prior year.

Wells Fargo and Merrill Lynch also reported dips during the fourth quarter. Assets fell 10% to land at $1.5 trillion for Wells Fargo’s retail brokerage unit while Merrill Lynch said client balances dropped 5% to $2.2 trillion. (Wells Fargo has also suffered from advisor attrition, contributing to the decline in asset levels.)

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Morgan Stanley CEO James Gorman told analysts 2018 was overall “a great year” for the firm, but, “the last 6 weeks of the year were obviously difficult.”

The firm’s wealth management business reported that pretax income from continuing operations fell 12% to land at $1.01 billion.

Market volatility affected other aspects of Morgan Stanley’s businesses. Fixed-income traders posted their worst result in three years as bond-trading revenue dropped 30% to $564 million.

James Gorman, Morgan Stanley CEO, portrait before a Bloomberg Television interview in Beijing, China, on June 1, 2017
James Gorman, chief executive officer of Morgan Stanley, poses for a portrait before a Bloomberg Television interview on the sidelines of the Morgan Stanley China Summit in Beijing, China, on Thursday, June 1, 2017. Gorman indicated his firm is seeing similar trading declines as competitors JPMorgan Chase & Co. and Bank of America Corp., which said second-quarter trading revenue is on pace to drop at least 10 percent.  Photographer: Giulia Marchi/Bloomberg

The firm’s wealth management clients have been moving into cash, according to Gorman.

“They’ve had a lot of anxiety served up in the past year. Not just the economy, but political anxiety and everything else going on in the world,” he said during the firm’s earnings call on Thursday morning.

Still, there were bright spots for Morgan Stanley.

The firm’s wealth management unit is experiencing low advisor attrition, executives said. At 15,694 brokers, headcount was down only 18 from the year-ago period and up from 39 for the prior quarter. And while clients may for the moment be allocating more of their portfolios toward cash, that could change in the weeks and months ahead depending on what happens in the markets, Gorman said on the call.

Executives also anticipate technology investments in wealth management will spur new growth in 2019. The firm has built out new capabilities around asset aggregation, risk analytics, and more.

“Over the medium and long term that should help FAs bring in clients’ other assets,” CFO Jonathan Pruzan said during the earnings call.

Gorman said the firm may explore acquisitions in wealth management and investment management, but did not go into detail.

“We’re open to acquisitions. These types of additions could let us pursue new types of clients or enhance growth with our existing clients,” he said.

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