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Morgan Stanley Sets Sights on Its Workplace Assets

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What You Need to Know

  • The firm's workplace business has more than $500 billion in unvested assets, CEO James Gorman says.
  • The firm raised its wealth management unit’s pre-tax profit margin goal to 30%-plus.
  • Q4 wealth management revenue increased to $6.3 billion, up 10% from a year ago.

Morgan Stanley on Wednesday reported stronger revenue and profits for its fourth quarter ended Dec. 31, citing its wealth management division as a major driver of growth in the quarter, with its advisor-led channel remaining the main driver of net new asset growth and its workplace channel called a key to its success.

“I’m incredibly excited” about the future of the workplace business, CEO James Gorman said on an earnings call. “As we’ve said before, we see the channel as a funnel for client and asset acquisition to sustain growth going forward. We now have over $500 billion of unvested assets, and expect to retain an increasing proportion of these assets as they vest.”

In 2021, the company had a 24% workplace retention rate, up from a 21% retention rate in 2020, he said. “Given our focused effort, our longer-term goal is to reach 30% retention,” he disclosed, saying the new metric “illustrates the strength of the workplace business to augment net new assets to wealth management.”

Morgan Stanley’s workplace strategy was “ignited” in 2019 with the acquisition of stock-plan administrator Solium Capital, now Shareworks by Morgan Stanley, and then again with the acquisition of E-Trade, a Morgan Stanley spokeswoman told ThinkAdvisor in September.

New Wealth Management Target

Of the company’s decision to raise its wealth management unit’s pretax profit margin goal to 30%-plus, Gorman said the change was driven by growing new assets and the expectation that increasing interest rates would accelerate its results.

Morgan Stanley previously had a 26-30% margin goal and the new target is higher than the full-year margin of 27% the wirehouse reported for 2021, excluding costs associated with its purchase of E-Trade in October 2020 and Eaton Vance in March 2021. Its wealth business reported a margin rate of 25% in 2021 and 23% for 2020, factoring in integration expenses.

“With respect to net new asset growth, [the wealth management business] has gone from very low single digits in the last decade, to 4% to 6% more recently, to unprecedented growth this year,” Gorman said on the call.

“We feel great about where we are today and the business’ potential,” he said. “With the top advisor-led business in the industry, complemented by leading workplace and self-directed offerings, the wealth franchise we have built is a category of one.”

Morgan Stanley already serves almost $5 trillion of client assets and overall revenue on assets remains high at over 50 basis points, “underlining this segment as an economic engine for the firm,” he said.

When the company thinks about the “growth opportunity ahead, we are most excited about the nearly 15 million relationships we have across channels, and the potential to deepen those relationships further and consolidate client assets onto our platform in turn,” he said.

During the Q&A, he said, “nobody in history, I think, has ever generated” the 30%-plus margin rate. But “we don’t think 30% is the ceiling” for Morgan Stanley, he said.

“But let’s run before we sprint here,” he said. “We’ve gone from 5 to 10 to 15 to 20 to 25, 27, 28% margins with growth. That’s a phenomenal story. If we can do 30%, which we will do because of the way rates are going, it gets even better. So 30%-plus, there’s no great magic to it. It’s just the math of how we think the business plays out the next couple of years.”

But he declined to project “what the plus is going to be,” saying it “might be .1 or it might be 5.”

Q4 Earnings

Morgan Stanley reported that total Q4 revenue grew to $14.5 billion from $13.6 billion a year ago. Net income applicable to Morgan Stanley was $3.7 billion, or $2.01 per diluted share, up from $3.4 billion, or $1.81 per diluted share, for the same period a year ago.

Q4 wealth management revenue increased to $6.3 billion, up 10% from a year ago, as client assets grew by almost $1 trillion to $4.9 trillion, up 23% from a year ago. The firm’s advisor-led client assets came in at $3.9 trillion, up 23% from a year ago.

Meanwhile, the firm’s fee-based asset flows came in at $37.8 billion for the quarter, up 57% from a year ago, it said.

(Pictured: James Gorman, CEO of Morgan Stanley; Photo: Bloomberg)