Morgan Stanley Wealth Management reached chief executive James Gorman's profitability goal a year early thanks to a combination of higher fee revenue and expense reduction.
The firm reported its profit margin was 22% in the third quarter, which is the lower end of the 22% to 25% goal that Mr. Gorman set earlier this year. He previously said he expected to be in that range by the end of next year.
Overall, the wealth unit brought in almost $3.8 billion in revenue for the quarter, up 7% year-over-year, and netted an $836 million pre-tax profit, up 25% from last year. That was despite a 2% decline in headcount over the past year. The firm, which has the largest brokerage force in the wealth management space, reported 16,162 brokers and advisers, down from 16,517 a year ago.
The advisers who remained were more productive as the average annual revenue per adviser of $932,000 crept closer to the $1 million mark that has been surpassed by some of its rivals, including
Bank of America Merrill Lynch and
UBS Wealth Management Americas.
The firm's chief financial officer, Ruth Porat, said on an earnings call Friday that dramatic growth in lending and fee revenue were helping to drive up revenue.
Interest income, a measure of how much the firm is making on its lending business, was $649 million, up 22% from the third quarter last year. It well surpassed the $503 million that the firm made from commission revenue in the quarter.
Ms. Porat said that the firm was seeing higher drawdowns on securities-based lending, where clients take out loans using their portfolio as collateral.
“This is increased penetration on what is a sizeable client base,” she said.
Fee revenue jumped 14% from a year ago to $2.2 billion. That was partially driven by a greater amount of assets in fee-based accounts. The firm had $768 billion generating fees as of September 30, compared to $652 billion last year.
At the same time, the firm managed to trim expenses, which totaled almost $3 billion, by 5% from the same quarter last year, mostly from declines in non-compensation expenses.
Compensation and benefits, however, rose 7% to nearly $2.2 billion. When taken as a percent of revenue, however, it remained steady from last year at 58%.
“We remain very focused on expenses overall,” Ms. Porat said. “Our view is that there is more to do.”
The number of branch offices also continued to tick down. The firm reported 631 retail locations, down 3% from 650 a year ago. The firm has said that it is consolidating multiple physical locations in major metropolitan areas as leases run out.
