Morgan Stanley said third quarter profits for its wealth management division jumped 17% from a year ago, contributing to strong overall earnings for the company.
Net income for the wealth management division rose to $501 million for the quarter from $430 million for the same period a year ago.
"The management team has been here for five years, and while we've accomplished much, there is still more we can do," CEO James Gorman said during a conference call.
Profits rose despite a shrinking advisor workforce. Headcount fell to 16,162 for the quarter from 16,316 from the previous quarter, a 1% decrease. At the same time, advisor productivity rose. Revenue per advisor grew to $932,000, up from $908,000 for the previous quarter and $848,000 for the year-ago period.
"What stands out for me is the decline in advisors. At Merrill Lynch we've seen a healthy increase. They are moving in different directions," says Alois Pirker, research director at Aite Group.
Bank of America, which released its third quarter earnings earlier this week, said that headcount at Merrill Lynch grew by 155 to pass 14,000 advisors.
Revenues also keep rising at Morgan Stanley despite falling advisor headcount. Wealth management's total revenues for the quarter rose to $3.9 billion from $3.5 billion for the year-ago period, a 9% increase, outpacing a 5% rise in costs. Non-interest expenses climbed to $2.9 billion from $2.8 billion.
Compensation and benefits were the largest contributor to costs, reaching $2.2 billion from $2 billion. CEO Gorman said in June that he wanted to lower the comp-to-revenue ratio from 60% to 55%. For the third quarter, the ratio dropped one percentage point from the previous quarter to 58%. It was flat year-over-year.
Client assets, at $2 trillion, were up 10% from the previous year, but nearly flat from the previous quarter. Fee-based assets grew to $768 billion from $652 billion for the year-ago period. Despite the overall growth, fee-based asset inflows slipped, falling to $6.5 billion from $12.5 billion for the previous quarter and $15 billion for the same period a year-ago.
Morgan Stanley said the firm's securities-based lending and other loans mushroomed 48% year-over-year, increasing to a record $20.3 billion from $13.7 billion. Residential real estate loans soared 61%, climbing to a record $14.3 billion from $8.9 billion.
"As we enter the fourth quarter, opportunities for loan origination remain strong for the bank and wealth management," Morgan Stanley CFO Ruth Porat told analysts during a conference call.
Pirker, the analyst, notes that the leading wealth management firms are all moving towards servicing more of the non-investment needs of clients. "We've heard a lot of talk and seen action on the holistic wealth management approach, and frankly if you want to look at client goals, it's not just investment goals."
Overall, Morgan Stanley's profits soared 74% reaching $1.7 billion, up from $1 billion.
Net revenue rose 12%, climbing to $8.9 billion from $7.9 billion. Non-interest expenses increased only 1%, edging up to $6.6 billion from $6.5 billion. Earnings-per-share rose to $0.86 from $0.45.
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