Morgan Stanley to Move Deeper Into Retail by Buying Stock-Plan Company
Taking a leaf from discount brokerage competitors such as E*Trade Financial that administer stock plans for corporate employees in hopes of converting them to wealth management clients, Morgan Stanley said Monday that it will pay $900 million to buy software-as-service firm Solium Capital, Inc.
The Calgary, Canada-based firm provides stock award monitoring and tracking programs to about one million employees at 3,000 private and public companies. It has a niche in servicing employees with little investing experience at start-ups such as Instacart Inc., Shopify and Stripe Inc. that Morgan Stanley hopes to convert to users of its Access Investing “robo” platform and its Virtual Advisor call-center channels.
As these potential clients grow wealthier they will naturally transition to an “advisor-based relationship,” the company said in announcing the all-cash deal.
“We wanted to be able to capture a younger, more emerging client segment at a point early in their wealth accumulation years,” said Andy Saperstein, co-president of Morgan Stanley Wealth Management. “We’ve always been a player, but didn’t have the ability to administer the plans well digitally, or to serve the mass of the employees at scale.”
The acquisition, expected to close this or next quarter, underscores Morgan Stanley’s commitment to the big bet it made on retail brokerage with its acquisition of Smith Barney. But it also illustrates the challenges traditional brokerage firms are encountering in finding new business as older, wealthier clients draw down investments and their aging brokerage forces retire.
Morgan Stanley has been incentivizing its advisers to lock in customers and their families by promoting financial plans and using digital client-servicing tools, a difficult cultural change for those who plied their trade pushing investment strategies. In its move to source new clients from the low-margin stock plan administration business, the company is following a strategy brokerage firms have long used in servicing corporate retirement plans.
Morgan Stanley’s own stock-plan business works with about 1.5 million employees at 320 established companies, but for the past two years it has been in the process of converting those customers to Solium Capital’s platforms. Other brokerage firms, including UBS Wealth Management USA and Oppenheimer & Co., also “white-label” their stock plan services through the Canadian firm. Spokespeople at those companies did not immediately respond to a request for comment as to whether they will remain with Solium after ownership shifts to Morgan Stanley.
The acquisition, expected to close this quarter or next quarter, will make Morgan Stanley the largest stock administrator by plans served and the third largest in terms of participants, executives said.
Expanding market share in that servicing business is an obvious goal, Saperstein said, but with the stock-plan fees under increasing pressure, the main point of the deal is to source new wealth clients and to cross-sell investment banking, cash management and banking services to Solium’s stock plan clients.
Morgan Stanley has not yet set up hard criteria for how wealthier stock administration plan participants will be referred to advisers, or who will be authorized to call on employees as their wealth grows.
“It will be consistent with the principles we have today,” Saperstein said, noting that advisors will be rewarded for adopting “goals-based planning” and providing banking as well as investment products—in combination with recommendations from local leaders in the field.
The deal to buy the software services firm also may quiet critics who say establishment companies have been slow to respond to technological and client-generation inroads from robo-advisors, registered investment advisors and discount brokers.
“For the last 10 years it’s been the digital players disrupting traditional wealth management through a bunch of different ways,” said Morgan Stanley Wealth Chief Operating Officer Jed Finn. “This is the reverse happening, where you have traditional wealth management disrupting what has been a digital space.”
Brian McDonald, a former Charles Schwab Corp. stock plan executive who joined Morgan Stanley last year to revamp its stock unit, will remain head of the corporate and digital solutions group. He will work with Solium Chief Executive Marcos Lopez, who will be based in Calgary, Morgan Stanley said.
—Mason Braswell contributed to this story.