Morgan Stanley’s 'key driver' is wealth management, analyst notes

Morgan Stanley’s wealth management franchise is robust, according to one analyst, as the wirehouse and bank adjusts with changes at the top, specifically its CEO and seperately, the head of its nearly 15,000 financial advisor unit.

Last year Ted Pick replaced longtime chief executive James Gorman, and Jed Finn took over as head of wealth management in January 2024.

When Gorman arrived at Morgan Stanley in 2006 after running Merrill Lynch’s thundering herd of financial advisors, he began the arduous task of turning the investment bank and trading icon of Wall Street to focus on and build out its wealth management business.

Many regard Gorman’s most significant decision in wealth management was to buy the Smith Barney brokerage from Citigroup Inc. in two tranches: the first 51 percent in 2009 and the remainder a few years later. The total cost was $13.5 billion, according to the company. 

Sixteen years later, wealth management is indeed a cornerstone of the bank, according to one analyst.

“In our view, [Morgan Stanley's] wealth management business is the key driver of the franchise and a market leader given its scale, market share gains, improving profitability and product depth,” wrote David Konrad, managing director, equity research at Keefe, Bruyette & Woods, in a note to investors this week that was spurred by a recent meeting with Finn. “Although we believe there are headwinds owing to uncertainty in the macro and political environment, increased stability in interest rates and high equity market levels provide strong tailwinds for this business.”

At an industry conference last year, Finn outlined his plans to boost the wealth management unit’s profit margins to 30 percent compared to the 25 percent profit the unit saw in 2023.

Finn is focused on four lanes to driving growth in the wealth management business: deepening relationships with existing clients, as well as winning new ones; pushing more client assets into advisory accounts that charge annual fees; selling more alternative investments, which can be pricey and carry risk; and driving clients to look to the firm for banking services, like checking accounts.

Morgan Stanley’s investment in technology for its advisors is paying off, Konrad noted.  

“Morgan's strong investment in technology and AI has improved financial advisor productivity, freeing up time for them to focus on relationship management and client acquisition while technology/AI supports client service and centralized portfolio management,” he wrote. “This strategy has helped client retention, as MS retains 99 percent of clients with assets over $1 million.”

On the downside, Morgan Stanley’s acquisition of net new assets has fallen recently, Kondrad wrote.

“Net new assets have slowed over the past two years from over 10 percent in 2021 to nearly 5 percent in 2024,” he wrote. “However, the higher interest rate environment did drive outflows over the past couple years, as clients reduced debt. Importantly, gross new assets generated in 2024 was nearly as high as 2021.”  

And Konrad forecasted Morgan Stanley to meet its 30 percent pretax margin target in 2026.

“Although pretax margins are important, management is also focused on strong franchise investment driving long term growth,” he wrote. “Had investment in the franchise not been so strong, Morgan Stanley could have already achieved a 30 percent pretax margin.”