Three Ways Morgan Stanley Can Grow Its Wealth Management Business

by Trefis Team
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At a recent investor event, the head of Morgan Stanley’s (NYSE:MS) wealth and asset management business Greg Fleming, detailed a three-point strategy aimed at increasing the profitability of the investment bank’s wealth management operations. [1] Targeting a pre-tax margin of 17% for Morgan Stanley Wealth Management (MSWM) by mid-2013, Fleming reached the figure two quarters in advance and is now setting his sights on pushing the margin figure towards 20%. He intends to achieve this by getting advisers to cross-sell more bank products, by providing more “managed account” products and by offering capital market services to wealthy clients looking to raise money. To facilitate faster growth, MSWM will also spend half a billion dollars to improve its technology over the rest of the year so that clients have better access to its banking services.

We have pointed out on numerous occasions in the past, Morgan Stanley’s performance over recent quarters demonstrates a fundamental shift in its business model – from one relying almost completely on sales & trading to the balanced one it is now, thanks to the emphasis on generating steady revenues by focusing on its wealth management business. The continuing focus on the profitability of its wealth management business is no doubt good news as it holds the promise of considerable upside to the investment bank’s value.

We have a $24 price estimate for Morgan Stanley’s stock, which is about 5% below its current market prices.

See our full analysis of Morgan Stanley


Focus #1: Pushing Advisers To Cross-Sell More Bank Products

Fleming’s top priority is to get Morgan Stanley’s wealth management advisers to sell more bank products to clients, something that MSWM lags behind peers Bank of America-Merrill Lynch (NYSE:BAC) and Wells Fargo (NYSE:WFC). This includes the sale of mortgages and loans to wealthy clients, which in most cases is made favorable for clients by accepting securities and other investment products as collateral. Such a push should help the size of client assets managed by MSWM grow faster over the coming years – the impact of which on the bank’s value can be understood by making changes to the chart above.

Focus #2: Offering Clients More “Managed Account” Products

One of MSWM’s strengths in the industry is its proven track record in helping investors pick better performing hedge funds, mutual funds and other investment options based on the clients’ investment goals. The investment bank seeks to improve its leadership in this area and extend these customized services offered to more clients opting for managed accounts to be able to rope in additional fees. The proposition comes as a win-win situation for everyone involved as clients gain access to a wider range of investment options, the external fund manager see more cash inflows from the newly added customers and Morgan Stanley pockets a tidy fee in the match-making process.

Focus #3: Provide Wealthy Clients Better Access To Capital Market Services

This part of Fleming’s plan hinges on better collaboration between Morgan Stanley’s investment banking and wealth management arms. Wealthy clients looking to raise cash for their businesses would be provided access to debt and equity capital markets by Morgan Stanley’s capital markets team. The bank’s strong presence in global capital markets would definitely help in this regard and will bring in more business (and hence more fee revenues) to the investment banking operations.

While this three-pronged plan definitely holds promise when it comes to generating value for the bank, it must be remembered that the role of Morgan Stanley’s brokers is pivotal to the success of the plan. What remains to be seen is how well Fleming translates this plan into action by buying in the support of his 16,000 strong workforce of brokers.

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Notes:
  1. Fleming opens Morgan Stanley’s wallet, Reuters, Jun 4 2013 []
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