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Morgan Stanley Sees Bank Programs as Key to Growth: Porat

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Morgan Stanley CFO Ruth Porat made the case for both the wirehouses and its own advisors in a presentation Tuesday at Barclays Financial Services Conference.

First, Porat says, the wealth management industry is going through a “secular shift” as client move assets from transactional accounts into managed ones.

Clients had about $3.5 trillion in managed assets last year, up from $1.2 trillion in 2004, according to a slide shared by Morgan Stanley that cited Cerulli Associates.

The wirehouse firms are taking advantage of this trend, Porat notes. They manage about 35% of all fee-based client assets vs. 19% in 2004, Cerulli estimates.

A major way Morgan Stanley’s reps can boost their fee-based accounts and overall business, according to the executive vice president, is by leveraging bank programs and net interest income.

This represents a “significant opportunity across the wealth management franchise reflecting relative low client penetration vs. peers,” she said. (In other words, some of Morgan Stanley’s rivals—notably Bank of America-Merrill Lynch—are ahead of it right now.)

Morgan Stanley is pushing securities-based lending, mortgages and tailored lending. Judging by where its bank programs are, there is certainly room to grow. (It has 16,316 advisors who produce an annual average of about $908,000 per rep in yearly fees and commissions).

About 64% of its reps are using one of its lending products in their practices, up from 48% in late 2011. Among advisors with the highest and fastest-growing levels of fees and commissions, the use of lending products has growth to 84% from 59% over the same period.

However, the number of advisors using four or more lending products over the past 12 months stands at under 25% as of June 30.

To improve that figure, Morgan Stanley is rolling out “Change the Bank” technology.

The aim of these tech tools is to facilitate more banking business, help clients complete more forms online and monitor more accounts via the web and on tables, Porat says.

At the same time that it is rolling out new technology, the company is under tremendous pressure to cut costs in order to strengthen its financial results, as Chairman and CEO James Gorman has repeatedly told investors.

Thus, Porat notes, the wirehouse will “reduce operations manpower needs and operating costs” as it moves to make its processes and technology similar across the company.

(Morgan Stanley integrated its wealth platform with that of Smith Barney in mid-2012, a process that some observers at the time was both costly and disruptive.)

Check out 12 Best & Worst Broker-Dealers: Q2 Earnings, 2014 on ThinkAdvisor.