Morgan Stanley's wealth management unit sees record profits

Firm does more with fewer advisers during the first quarter.
APR 18, 2018

Morgan Stanley's wealth management division saw assets fall slightly in the first three months of the year, but its profits hit a record high, according to the quarterly earnings report released Wednesday. The bank's wealth management unit notched a record $1.16 billion in profits during the first three months of 2018, up 1% from the fourth quarter and up 19% from a year earlier. Revenues dipped 1% from the fourth quarter, to $4.374 billion, but were up 8% from a year earlier. "Wealth management remains solid for the quarter, a combination of continued advisory growth supported by secular trends and the business's scale-driven operating leverage," Morgan Stanley CEO James Gorman said on the earnings call. "We continue to actively invest in the business, building out our digital offerings, banking products and technology capabilities more broadly." The increased productivity of its financial advisers helped, too. Morgan Stanley had 15,682 advisers in the first quarter, unchanged from the fourth quarter but down 1% from a year earlier. Average annualized revenue per financial adviser was $1,115,000, flat from the first three months of 2018, but 8% higher than a year earlier. Not surprisingly, client assets grew 8% from a year earlier, to $2.371 trillion. Fee-based assets stood at $1.058 trillion, up 1% from the fourth quarter and 8% from a year earlier. Clients pay a flat fee on the assets in these accounts, rather than a brokerage commission on transactions. The company noted that the shift to fee-based assets is a long–term trend. Morgan Stanley's pretax profit margin for the first quarter was 27%, compared to 26% in the fourth quarter of 2017 and 24% a year earlier. Margins have more than tripled in recent years, thanks to the ongoing bull market and increased mortgages and other loans to clients. Clients are deploying more cash into the markets, the company said, and the Wealth Management division captures those assets when they go into advisory accounts. Overall, the bank's net income rose to $2.7 billion for the quarter, up more than 40% from a year ealier. The company's stock was down 0.19% at midday. Over the past few years, Morgan Stanley management "has focused on driving franchise profitability and adviser productivity, mostly through increasing lending penetration," according to a report from Sanford C. Bernstein. "The lack of adviser growth could be an impediment to growing deposits over time."

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