Morgan Stanley’s Wealth Management Focus Is Paying Off

The rich are different. They’re also one helluva business. 

Morgan Stanley’s wealth management business had a record third quarter, boosted by IPOs and the rising stock market, according to the financial services firm’s latest earnings report. It raked in $232 billion in net new assets, more than double what analysts were expecting and a significant jump from $81 billion during the same period last year. Net revenue for the wealth management business climbed to $9.1 billion from $8.2 billion the previous year. 

Morgan Stanley is still a stock-trading titan: It brought in $5.8 billion from that arm of the business during the quarter, up 41% year over year. But in the wake of the 2008 financial crisis the firm’s then-CEO James Gorman kicked off a transition to focus more on wealth management that current chief executive Ted Pick has continued. 

The relatively new playbook is paying off for one of Wall Street’s old-school institutions. Morgan Stanley now has a $10.5 trillion pool of assets across the wealth and investment management business that can generate revenue, even if trading and dealmaking slows. 

Morgan’s Moat 

It’s a different story for rival Goldman Sachs. The bank may have also beaten quarterly profit estimates, but its performance relies heavily on dealmaking, which can be a tough business. Even if Goldman has a healthy pipeline of potential transactions, there’s no guarantee that those transactions will close and the bank will pocket the advisory fees. 

Morgan Stanley’s strategic direction is also very different from Charles Schwab’s, which has pegged much of its success to customer assets and deposits. That sets Schwab’s business apart, but it also means it’s particularly sensitive to its clients’ cash balances and interest rates. 

However, today’s competitive moat isn’t necessarily tomorrow’s: 

• Wealth management is far from immune to market volatility, since falling stock prices reduce assets under management and the asset-based fees that Morgan Stanley is increasingly boasting. Despite the stock market recently hitting record highs, it had its worst day since July last week after inflation rose in September, concerning investors that another interest rate hike is around the corner. AI-related fears have also rattled markets of late. 
• While Morgan Stanley has diversified its revenue model, it’s still exposed to the same market concentration as the rest of us. The tech-heavy top 10 holdings in the S&P 500 account for nearly 40% of the total index. 

IPO Olympian: More than half of the wealth management business’s record net new assets at Morgan Stanley were associated with IPO-related flows. “With an active IPO calendar, the pace of our funnel accelerates and client interest in advice increases,” the firm’s Chief Financial Officer Sharon Yeshaya said in a call with analysts. She added that while flows will fluctuate, “our pipeline and our connectivity across channels allows us to build relationships early and deepen them over time.”