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Morgan Stanley Tops Estimates; Advisors Attract $15.5B of Inflows: Q3 Earnings

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Morgan Stanley (MS) said Tuesday that it had net income of $2.2 billion, or $1.14 per share, from continuing operations compared with income of $314 million, or $0.05 per share, for the same period a year ago, beating analysts’ estimates.

Net revenues were $9.9 billion for the current quarter compared with $6.8 billion a year ago. Results for the quarter included revenue of $3.4 billion, or $1.12 per share, compared with negative revenue of $731 million a year ago related to changes in Morgan Stanley’s debt-related credit spreads and other credit factors, such as a debt valuation adjustment.

For the current quarter, net income applicable to Morgan Stanley, including discontinued operations, was $1.15 per diluted share, compared with a net loss of $0.07 per diluted share in the third quarter of 2010.

The wealth-management group had net revenues of $3.3 billion, with net new assets for the quarter of $15.5 billion, a record since the inception of the Morgan Stanley Smith Barney joint venture (MSSB), according to the company, and net flows in fee-based accounts of $10.1 billion.

The quarter’s pre-tax margin improved to 11% from 9% a year ago and in the previous quarter.

“Morgan Stanley effectively navigated turbulent markets while consolidating our market share gains with institutional clients and demonstrating resilience across the global wealth-management business as evidenced by record net new assets flows since the formation of MSSB,” said President and CEO James P. Gorman, in a statement.

Wealth Management

The wealth-management unit — which continues to prune lower-producing advisors — had pre-tax income from continuing operations of $362 million in the third quarter, up 12% from the previous quarter and 29% from the year-ago period. 

Income after the noncontrolling interest allocation to Citigroup for the Morgan Stanley Smith Barney joint venture, $52 million, and before taxes was $310 million.

Net income after these adjustments and taxes was $169 million in the third quarter, representing a 6% drop from the second quarter but a 17% increase for the year-ago period.

Net revenues of $3.3 billion declined 6% from last quarter but increased 5% from $3.1 billion a year ago “primarily reflecting higher asset management revenues and commissions partly offset by net losses from investments associated with the firm’s deferred compensation and co-investment plans,” the company said in a press release.

Revenues from commissions and fees were $670 million in the period ended Sept. 30 vs. $689 million in the second quarter, representing a decline of 3%, and $564 million in the year-ago quarter, accounting for a jump of 19%.

Sales from asset-management, distribution and related activities totaled $1.78 billion in the third quarter, a slight drop from the second quarter and an increase of 16% from last year.

Advisor Headcount, Asset Flows

The number of financial advisors in Morgan Stanley Smith Barney was 17,291 as of September 30, a 2% drop from 17,638 on June 30 and a 5% decline from 18,119 a year ago.

Average annualized revenue (or fees and commissions) per advisor totaled $747,000 vs. $785,000 in the second quarter and $686,000 in the third quarter of 2010.

Rival Merrill Lynch reported Tuesday that it had 16,722 financial advisors as of Sept. 30, each with about $854,000 in average yearly fees and commissions based on the third quarter’s results.

Assets under management per Morgan Stanley FA averaged $90 million in the third quarter, down from $97 million in the second quarter but up from $88 million for the year-ago quarter.

Total assets under management for Morgan Stanley’s wealth-management unit were $1.56 trillion as of Sept. 30 vs. $1.71 trillion in Q2 and $1.60 trillion a year ago.  (Merrill Lynch said its total AUM was $1.54 trillion in the third quarter.)

Net new retail assets ballooned to $15.5 billion in the third quarter from $2.9 billion last quarter and $5 billion a year ago. Fee-based net new assets were $10.1 billion as of Sept. 30 vs. $9.7 billion as of June 30 and $4.8 billion in the year-earlier period.

This represents average net new assets per FA of $896,420 overall and fee-based net new assets per FA of $584,119, up from $164,000 and $549,949 respectively in the second quarter and $275,953 and $264,915 a year ago.

For more Q3 news, go to AdvisorOne’s Earnings Calendar for the Finance Sector.