Morgan Stanley wealth management revenue falls 6% in fourth quarter

Company points to losses in its deferred compensation plan for certain employees as driving the decline

Jan 17, 2019 @ 2:25 pm

By Bruce Kelly

As the broad market churned and fell in the last three months of 2018, Morgan Stanley's wealth management group saw net revenue fall to $4.14 billion, a 6% decline from the same three months a year ago.

In its earnings release, the company said revenue declines at its wealth management unit were, for the most, due to losses related to investments associated with certain employees' deferred compensation plans.

The company did not reveal the specific losses in the deferred compensation plan.

Last year "was a great year that finished on a disappointing note," said CEO James Gorman during a conference call with investors and analysts Thursday. "We do not believe the fourth quarter is the new normal."

The S&P 500 declined 13.5% in the final three months of 2018, making for challenging conditions for financial advisers and their clients. For the year, the S&P 500 declined 4.4%.

Since 2015, Morgan Stanley's compensation plan has involved a small percentage of deferred pay for its advisers and other employees, a thorn in the side of some at the firm. While there have been some minor changes in the plan, those will not have an impact on current or new financial advisers.

"We were pushing too much compensation into future years," Mr. Gorman said.

In its strategic update for wealth management in 2019 and beyond, the company said it would "maintain investment in order to drive technology adoption and consolidate assets held away," goals executives with the firm spoke about throughout last year.

The company also said it wanted to "expand banking and lending offerings and increase client penetration," according to its presentation.

"Lending makes sense because it's very profitable for a firm like Morgan Stanley," said Louis Diamond, an industry recruiter. "The wirehouses have banking, lending, and investments all under one roof. From the bank's standpoint, it makes a ton of sense. The key is how the directive is delivered to advisers."

Morgan Stanley's headcount of financial advisers was essentially flat from the year's start to its end, when it reported it had 15,694 advisers. It reported a decrease of 18 advisers when compared with the end of 2017, but an increase of 39 versus the prior quarter, which ended in September.

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