October 14, 2021

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Morgan Stanley’s Wealth Management division added a net $135 billion in customer assets in the third quarter across its advisor-led, self-directed and workplace segments, up 89% from $71 billion in the second quarter and 160% year-over-year, the bank reported.

Total net new assets year-to-date hit $300 billion, the company said, as Chief Executive James Gorman lauded the “multi-pronged” approach to gathering assets from multiple channels in contrast to the days of depending solely on broker headcount to drive growth.

“It’s gone from one model—a defense and attack model of keeping your people and trying to get some of the marketplace—to a multi-pronged model,” Gorman said on the company’s earnings call. “This is set up to have multiple channels of growth in the years ahead, which is the strategy.”

By comparison Bank of America’s Global Wealth division, which primarily includes its Merrill Lynch brokerage, reported on Thursday that it added a net $112 billion in client balance “flows” combined over the past four quarters and $14.7 billion in advisory assets in the third quarter.

The asset boost at Morgan Stanley Wealth helped push revenue to $5.94 billion, up 28% from the third quarter of 2020, prior to its acquisition of E*Trade Financial. Net income was up $37% to $1.53 billion, and pretax margin was 26% but would have been 28% excluding $113 million in integration expenses in the third quarter, the company reported.

Morgan Stanley’s rise in assets was fueled in part by the purchase of an institutional consultant with $43 billion in retirement plan assets in the quarter but was still primarily driven by the firm’s core sales force of around 16,000 brokers who added a net $70.6 billion in fee-based assets alone in the quarter.

The advisor-led channel managed $3.65 trillion in assets, up 32% year-over-year and representing the majority of the $4.63 trillion in assets at the wealth division.

But the portion of new assets coming from the new channels was increasing as Morgan Stanley funneled some of its 5.3 million workplace customers and 7.4 million self-directed households to full service advisors, where relationships can be significantly more profitable, according to senior executives who spoke on condition of anonymity.

Around 1,000 Morgan Stanley brokers who have qualified to be a part of the “reinvestment network” based on their clean compliance records and growth rates are receiving as many as 100 leads, the executives said. The program is expected to grow as the firm experiments with new ways to introduce workplace and self-directed customers to full service brokers.

In one recent example, the firm hosted a financial wellness seminar for 4,000 employees of a large technology company on the West Coast, and 40% said they would be interested to speak with an advisor.

The fresh source of leads has the dual benefit of helping improve retention for brokers whose books have grown as a result, the executives said.

Gorman, a former McKinsey consultant who also ran Merrill Lynch’s wealth business prior to joining Morgan Stanley in 2006, touted on the earnings call that Morgan Stanley had achieved the unusual feat in the brokerage industry of net positive recruiting as more experienced brokers were coming into the company than leaving.

“At my previous firm and here, for the most part, we had a net deficit. We were losing advisors to RIAs [registered investment advisors]. We’re losing them sometimes to private banks, and losing some smaller producers to places like Linsco Private Ledger,” Gorman said. “That has all turned.”

The CEO attributed the success to a diversified business model and “power of the brand” that was attracting “very big teams” while helping retain some key groups.

“Do you want to take a book of several billion dollars to a firm that is not a global leader in the equities markets and is not a global leader in underwriting?” Gorman said. “I don’t think so.”

Still, recruiting remains a small portion of the net new asset growth, according to the executive sources. Morgan Stanley had largely stopped recruiting veteran brokers as it sought to cut down on expensive hiring costs in 2017 but has revived its efforts over the past two years to supplement its asset growth. The firm this year stopped reporting its total number of advisors.

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