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Will new Morgan Stanley deal boost client acquisition?

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Morgan Stanley’s wealth management business got back on track after a rough fourth quarter, and the firm is eyeing new opportunities to win over young clients through its pending acquisition of Solium Capital.

The deal, announced in February, would give Morgan Stanley a chance to target clients still in the wealth creation phase, CEO James Gorman said during an earnings call. Solium serves 3,000 stock-plan clients and 1 million plan participants.

Prompted by analysts questions, Gorman identified three ways his firm’s wealth management unit lands new clients: through advisors (“We’re A+ in that zone,” Gorman said); pure direct, which Morgan Stanley eschews; and, lastly, through the workplace.

“That is where Solium helps us,” Gorman said, noting that when assets convert in stock plans, they will convert into Morgan Stanley accounts.

However, Gorman cautioned analysts not to expect an immediate jump in wealth management business as a result of the Solium acquisition. It’s a long-term play, he said. Plus, Morgan Stanley has equal, if not bigger, opportunities to expand its financial advice business, Gorman said, pointing to digital investments and room to sell more banking and lending products to clients.

“From a strategic perspective, it’s always fun to talk about new stuff. The media and investors like things that are new and exciting and sexy. Solium kind of checks all those boxes,” he said.

“I don’t want to dampen enthusiasm, but I want to put it in context,” Gorman continued. “To win in the workplace and to lose in advisory is not an option. Our job is to win in the advisory space, to crush it there.”

On that score, the firm’s wealth management business bounced back from a challenging fourth quarter, reporting first quarter profits of $924 million, up 20% from the prior period and 1% year-over-year, according to the company.

Transactional revenue rose to $817 million, an increase of 9% year-over-year and 94% from the prior quarter. Expenses were flat at approximately $3.2 billion.

Gorman, speaking about the overall company, re-emphasized the need for discipline. “There is a whole machine around expense management. We sort of turn up that machine again and got the engines going. My view is that we keep this going because the world is uncertain,” he said.

Client assets rose 4% year-over-year to $2.47 trillion. Morgan Stanley’s headcount, meanwhile, increased a modest 26 advisors year-over-year to reach 15,708. Executives said the firm has benefited from low advisor attrition — something UBS and Merrill Lynch have also experienced. Wells Fargo, however, has seen its headcount fall by more than 1,200 advisors since a series of scandals started to rock the consumer banking side of the company in 2016.

Morgan Stanley CFO Jonathan Pruzan attributed his firm’s stable headcount to “an attractive platform” for advisors and dampened recruiting environment.

“That is good for the stability of the platform, for relationships and for the ability to invest,” Pruzan said.

He added: “Less movement of people, broadly speaking, is better.”

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