The results of Morgan Stanley’s global wealth management group have improved over the past five quarters. What’s helped you bring about this change?We’ve assembled a terrific group of executives. They are responsible for the turnaround of the business. We’ve drawn them from all four corners of the industry. They are very talented and energized.
It really is a very broad and big team. I’m very proud of what they’ve been able to do, and the way they are working together.
We just had an off-site [meeting], and the name of the event was “What’s Next?” We feel that the immediate turnaround has happened, and now we’re focused on growing the business even more than it’s been growing.
In the second quarter, the group had pre-tax income of nearly $270 million, a 67 percent increase from last year, and a pre-tax margin of 16 percent. Net sales were $1.6 billion. How do you view recent results for your group?The revenues for the first half of this year are up 17 percent to 18 percent. Most of our competitors are closer to 12 percent or 13 percent.
As for profit margins, it’s going very well. We’ve gone from having extremely poor margins to now having five consecutive quarters of increasing margins and increasing profits.
While I describe the results overall as decent, we’re certainly not best in class. But we’ve had a three- to five-year plan to get ourselves into best-in-class shape. And to be in this position after a year and a quarter is a clear sign that we’re showing progress. It’s probably a little ahead of where most people thought we’d be at this point.
Again, there’s much more to be done. We’ve clearly shown the business has strong earnings potential, which was the open question a year and a half ago: Could it ever make decent money or was it really just too small when compared with the scale of some of the bigger players? We’ve answered that.
As Wachovia merges with A.G. Edwards, some industry leaders are saying that this proves that only the biggest will survive in this business. What’s your opinion?The argument is not very subtle. If you believe it, then you go and hire as many financial advisors as you can get your hands on. Morgan Stanley did that once.
And what the industry’s learned is that productive advisors are really what’s important and having a rational cost-basis to support them.
In the last quarter, our advisors did $814,000 in [annualized] production and in 2002, we were at $324,000. And in the beginning of 2005, we were at about $500,000.
The productivity is really the most important thing, and then you build size around productivity. But it hasn’t been a huge inhibitor in the growth of our business. We’ve brought in $9 billion of net new money in the last quarter. And Merrill’s number for the quarter was $9 billion with [about] twice as many advisors.
Superficially, you can say that the number of advisors is the most important metric. But you have to be very, very careful in that thinking.
The average advisor we’ve recruited is doing $600,000, and the average advisor that we’re losing to our competitors is doing $325,000 or around that level. Quality also matters a lot.
Still, we’ve shown growth in our financial advisors recently for the first time in a long time. And we will grow financial advisors. So, I’m not saying that size doesn’t matter, but I am saying it’s not sufficient.
What is your source of recruits?We are attracting a broad range, including from our traditional competitors. But whereas two years ago we were losing a lot of financial advisors and high-quality ones, now we’re gaining a lot of financial advisors and high-quality ones. So there’s momentum.
And we’re finding some high-end performers at boutique firms. We just hired a very strong team from U.S. Trust in New York. We’ve hired a lot of people in Europe focused on Russia and the Middle East. We hired a big group from one of the banks in Singapore. There’s a lot of broad hiring going on, and there’s focus on our main competitors.
We have enormous recruiting momentum. I’ve never seen anything like it. Part of it is the market, to be sure, and the environment as well as the deal sizes. Clearly, this is working to our favor.