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Morgan Stanley to Sell E-Trade Advisor Services for $55M

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What You Need to Know

  • The sale of the custody business to Axos Clearing includes some 200 RIA clients with about $23 billion in assets.
  • The news comes about six months after Morgan Stanley completed its $13 billion purchase of E-Trade.
  • On Friday, Morgan Stanley CEO James Gorman said the firm wants to get to $10 trillion in wealth and investment management assets, up from its current $5.7 trillion.

Morgan Stanley is selling the RIA custody business of E-Trade to Axos Clearing for $55 million in cash.

Axos Financial, the parent firm of Axos Clearing, says the deal includes some 200 RIA clients with about $23 billion in assets and should close in the third quarter of 2021.

“When E*Trade and Morgan Stanley joined forces [in 2020], establishing a referral program between E*Trade customers and our financial advisors was a key area of focus,” Morgan Stanley said in a statement Tuesday. “This shift created a natural inflection point to evaluate the RIA custody business we inherited, and ultimately we found a strategic buyer in Axos Financial.

Morgan Stanley completed its $13 billion purchase of E-Trade Financial on Oct. 2, 2020. The bank’s wealth unit had assets of $2.85 trillion as of Sept. 30, 2020. It reported wealth assets of $4.0 trillion as of Dec. 31, 2020, with most (but not all) of the fourth quarter’s $1.15 trillion asset increase tied to its purchase of the brokerage firm.

“We are extremely excited to announce the [E*Trade Advisor Services] acquisition,” said Axos Financial President and CEO Gregory Garrabrants, in a statement. “We intend to leverage EAS’ turnkey technology platform and Axos Clearing’s capabilities to expand the service offerings to independent registered investment advisors and turnkey asset management program managers.”

Garrabrants also said the transaction includes some $1.2 billion of client cash deposits.

“The RIA custody business is an integral part of our strategic plan, and adding a team of experts with decades of experience and relationships with the RIA community is something we highly value,” he added. We look forward to investing in and growing the EAS team to support their high-touch service model.”

Axos Financial includes Axos Bank, which has some $14.4 billion in assets, as well as Axos Clearing and Axos Invest, which serve broker-dealers, RIA correspondents, digital investment advisory services and retail investors.

Morgan Stanley Momentum

The news comes three days after Morgan Stanley executives outlined aggressive asset growth targets.

More on this topic

“My target is $10 trillion of money under management,” CEO James Gorman said during a call with equity analysts Friday. “I tell the team internally they hate that.” 

The firm reported first-quarter profits Friday of $4.1 billion, up 143% from last year, despite its $911 million hit tied to the blowup of Archegos Capital Management. 

Also in the quarter, its wealth management revenue in the quarter rose 47% to nearly $6 billion, and net income was up 44% to $1.24 billion. 

Total assets in the wealth unit as of March 31 were $4.23 trillion with $3.35 trillion tied to advisor-led accounts and the remainder in self-directed E-trade investor accounts. Its financial advisor headcount was 15,950 as of Dec. 31, 2020.

“Net new assets [in the first quarter of 2021] were $105 billion, which is easily our best ever quarterly flows and concrete evidence of the growth trajectory of this business. These flows represent an annualized increase of over 10% of beginning period assets,” explained Gorman, adding that $37 billion of the total flows were fee-based assets.

With the E-Trade and Eaton Vance deals completed, the bank’s wealth and investment management units now have combined assets of $5.7 trillion. “We are more convinced than ever that both deals help position Morgan Stanley for growth in the years ahead,” the CEO said.