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Regulation and Compliance > Federal Regulation > DOL

Morgan Stanley Says DOL Fiduciary Impact ‘Manageable’ as Q1 Profits Drop 53%

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Morgan Stanley (MS) said Monday that its net income fell 53% in the first quarter to $1.1 billion, or $0.55 per share, vs. $2.4 billion, or $1.18 per share, last year. Revenue declined 21% year over year to $7.79 billion.

The company adds that last year’s Q1 results included a tax benefit of $564 million or $0.29 per share. (Earnings beat analysts estimates, though sales fell short.)

“Obviously, 2016 got off to a difficult start,” said Chairman & CEO James Gorman on a call with investors, adding that “retail activity was extremely subdued.”

Despite the “more challenging revenue environment,” Gorman explained, “all was not lost. Wealth Management generated a pretax margin greater than 21% …, [and] we made real progress in our expense discipline …”

Morgan Stanley’s Institutional Securities business, its largest, had a 66% drop in net profits to $591 million vs. last year, as revenue slumped 32% to about $3.7 billion.

In investment banking, the volume of IPOs was down 82% quarter over quarter, CFO Jonathan Pruzan said during a conference call with equity analysts.

Wealth Management’s net income declined 8% from last year to $493 million. Sales weakened about 4% from the year-ago quarter to $3.67 billion.

In addition, the average yearly fees and commissions for its financial advisors, which number 15,888, declined by 4% from last year to $923,000. Total assets for the unit dropped slightly, 2%, to about $2 trillion.

DOL Fiduciary Impact

“As we’ve said in the past, we [have] been preparing for this eventuality for a while now, and we’ve been investing for this eventuality,” Pruzan explained. “When we put out our 23-25% margin target for next year, we had this in mind.”

The wirehouse also has “the largest advisory platform in the industry, as well as significant investments in our digital platform. So we think we are well positioned here… The overall impact to both our clients and our financial results are very manageable,” he said.

The focus of the new standard “is consistent with where we are going,” Gorman stated. “But it’s one of many things that are going on in that business …including the growth in the bank, the expense saving, the digital strategy that we’re putting in place.”

As for managed accounts, this business continues to grow, according to Pruzan. The firm has about $800 billion in these accounts, representing roughly 40% of assets.

In terms of digital operations, for which Morgan Stanley recently hired Naureen Hassan away from Charles Schwab, this effort “is really going to yield some interesting innovations going forward,” he said.

— Check out Morgan Stanley Grabs Schwab Exec Hassan as New Digital Head on ThinkAdvisor.


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