The quarterly reporting season often seems like little more than a parade of numbers and justifications for them. However, tucked away in these documents and discussions are details about the broker-dealers’ priorities, plans and strategies. Here are highlights from the earnings reports of the four biggest firms.
Morgan Stanley Wealth Management had net revenue of $3.8 billion, down 2% from a year before. Its pre-tax earnings were $859 million, 3% weaker than in Q2 2015, while its after-tax earnings were $516 million — a drop of 8% from the prior-year quarter.
Its pre-tax profit margin was 23%, the same as Q2 2015 and up from 21% in the first quarter. Chairman and CEO James Gorman has said the unit is expected to produce a pre-tax margin of between 23% and 25% for full-year 2017.
The group has 15,909 advisors. Morgan Stanley advisors have average annual fees and commissions of $959,000. Average assets per rep stand at $128 million. Total client loan balances were $69 billion as of June 30. Fee-based assets hit $820 billion in Q2 2016, with asset flows of $12 billion.
On a conference call with equity analysts, CFO Jonathan Pruzan stressed that the firm has been “spending significant energy and dollars into investing in our digital platforms in wealth management,” and that the firm sees its digital effort as “far more than just robo.” Morgan Stanley hired Naureen Hassan (from Charles Schwab, and a member of this year’s IA 25) to lead this effort earlier this year.
“We think that the right business model and the winning hand here is a combination of advice and FAs with technology,” Pruzan explained, pointing to some “early progress” with mobile apps.
Morgan Stanley’s tech approach emphasizes data and analytics, so clients can be more informed; efficiencies around automation, so advisors and clients can spend more time together (“and not focus on paperwork”); and how clients interface with the firm, which can include video, mobile, text and other technology, the CFO said.
“We have 3.5 million households in our footprint, with many different investing needs, but also many different requirements and idiosyncratic wants and likes,” Pruzan said. “We have been building out a broader platform in terms of how we interface with our clients. […] We believe secular trends here are for advice with technology, and that’s the business that we’re building.”
A diverse client base requires a diverse tech platform, according to Gorman: “In our own book of business, only 2% […] of our client assets are in households with less than $100,000. We have nearly $800 billion in households with $10 million or more. So you [have] to look at the segmentation [and] the complexity of the client needs. [Access] to distinct technologies is a clear need, but it’s by no means the only need for folks who’ve got $10 million, $20 million [and] $50 million.”
As for the impact of the Department of Labor fiduciary rule, the firm sees itself as “well-positioned for that change,” Pruzan said. “We are making the investments in digital. We do believe […] our wealth clients want advice, and they will pay for that advice. But [identifying] the ultimate mix and shift of products that they want and that they need is going to be a function of time.”
BofA Merrill Lynch
Revenue from Bank of America Merrill Lynch, U.S. Trust and the bank’s consumer-banking unit was down 2.4% year over year to $4.46 billion, while net income improved 8% to $722 million. The unit’s net interest income rose slightly to $1.43 billion from $1.35 billion last year. The Merrill Lynch business, though, had a 4.2% drop in revenue to $3.63 billion in Q2 2016.
The average level of advisor productivity is $984,000, though BofA said the figure is $1.26 million for veteran FAs. The wealth unit has some 16,664 financial advisors; 2,248 of these reps are with the consumer-banking unit. It also says it has a total of 18,159 wealth advisors, 2,229 of whom are with U.S. Trust.
Total client assets are $2.42 trillion. Asset flows improved to $10.1 billion in Q2 2016 from $8.6 billion a year ago. In addition, the unit’s pre-tax margin was 26% in the most-recent period, up from 23% a year ago.
The wealth unit’s average loan balances rose about 7% from last year to $141.2 billion. “Today, 61% of our advisors (compared to 55% last quarter) have 50% or more of their client assets under a fee-based relationship,” the company said in a statement.
The firm is trying to lower advisor attrition at the lower production levels, which CEO Brian Moynihan explains is “mainly due to people not being able to kind of build a book of business. And we’re trying to fix that through the integrated business system with our consumer and preferred teams.”