Morgan Stanley's wealth management fees climb to all-time high

Improvement reflect firm's shift of more clients into fee-based accounts priced on asset levels, which boosts results as markets rise.
JAN 18, 2018

Record stock markets have been good to Morgan Stanley. The firm's wealth management fees climbed to a record in the fourth quarter as the S&P 500 Index reached an all-time high. The company beat its target cost ratio for the year and posted the highest profitability under CEO James Gorman, who has pinned his strategy on the crisis-era acquisition of Citigroup Inc.'s Smith Barney brokerage. The shares rose as the company boosted its target for return on equity. Morgan Stanley has been moving more wealthy clients into fee-based accounts that are priced on asset levels rather than activity, boosting results as markets rise. Revenue from wealth management moved closer to parity with the institutional-securities business than at any point since 2013. Wealth management has "only increased in relevance as it's continued to grow," CFO Jon Pruzan said in an interview. "It's a larger and larger contribution of our earnings, which is a good thing given the stability" and high returns of the business, he said. The gains helped offset debt-trading results that were stung by the same malaise afflicting all of Wall Street. Fourth-quarter fixed-income revenue tumbled 45% to $808 million, missing the $1.03 billion estimate of analysts surveyed by Bloomberg. Equities-trading revenue declined 2% to $1.92 billion, compared with the $1.89 billion estimate. Morgan Stanley is Wall Street's leading stock-trading shop by revenue. For the year, fixed-income trading revenue fell 3.7% to $4.93 billion, which Mr. Pruzan called a "solid outcome" given what he estimated was a roughly 15% decline in the overall fee pool. "We're not rethinking our strategy" in fixed income, Mr. Pruzan said. "For our rates and FX businesses, given where volatility was, given the fact there were less idiosyncratic events this year, it was a really bad backdrop." Still, there were "encouraging signs" for some trading businesses in the first days of the year as interest rates climbed, he said. Shares of the company rose to $56.15 at 8:34 a.m. in early New York trading, from $55.35 at the close Wednesday. Fourth-quarter wealth management revenue climbed 10% to $4.41 billion, exceeding the $4.22 billion estimate of Jason Goldberg, an analyst at Barclays. Pretax profit in the unit set a record for the fourth straight quarter. Morgan Stanley took a $990 million charge in the quarter related to the U.S. tax overhaul. That was less than the $1.25 billion hit the company had warned was coming. It said its effective tax rate for this year will be 22% to 25% excluding one-time items, compared with 31% in 2017. Here's a summary of Morgan Stanley's fourth-quarter results: • Net income fell 59% to $686 million, or 29 cents a share, from $1.67 billion, or 81 cents, a year earlier, the company said Thursday in a statement. Excluding the tax charge, profit was 84 cents a share, beating the 77-cent estimate of 17 analysts surveyed by Bloomberg. • The full-year return on equity, a gauge of profitability, rose to 9.4% from 7.9% in 2016. Morgan Stanley said its new "medium-term" target for ROE was 10% to 13%. Mr. Gorman had targeted 9% to 11% for 2017. • Fourth-quarter revenue rose 5.3% to $9.5 billion, compared with the $9.24 billion average estimate.

Latest News

Carson Group adds $405M Northwestern Mutual team in Atlanta
Carson Group adds $405M Northwestern Mutual team in Atlanta

Yari Capital's move to Carson continues a run of additions for the $62 billion firm, days after it hired a veteran recruiter from Osaic.

Wealth Enhancement inks 'coming home' deal with Oklahoma RIA
Wealth Enhancement inks 'coming home' deal with Oklahoma RIA

Servo Wealth Management's $210 million book brings the Minneapolis consolidator's total client assets further past $160 billion.

Omaha-based RIA Stevens Capital Partners nears $1B, buys Dallas CPA firm
Omaha-based RIA Stevens Capital Partners nears $1B, buys Dallas CPA firm

The deal to acquire a 300-client tax firm sets up much-needed succession for its 80-year-old founder, while joining a widening trend of tax service integration among RIAs.

Most Americans oblivious to Social Security’s projected demise
Most Americans oblivious to Social Security’s projected demise

New Nationwide Retirement Institute survey reveals eight in ten Americans agree Social Security needs fixing and how.

NewEdge advisors reshape client work with AI in weeks after Anthropic rollout
NewEdge advisors reshape client work with AI in weeks after Anthropic rollout

Advisor-led adoption has been rapid for tasks from translating annuity contracts into plain English to speedy webinar prep.

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income