Morgan Stanley’s Gorman Doubles Down on Serving the Very Wealthy
James Gorman didn’t exactly tell brokers to let Main Street investors eat cake, but the chief executive of Morgan Stanley did make it clear on Tuesday that the firm’s future lies more than ever with servicing the ultra-affluent.
“Rich people are growing wealthier faster,” he told institutional investors at the firm’s U.S. Financials conference in New York, and the best way to attract them is to automate mundane client tasks for sales associates and help brokers communicate more effectively through technology.
Morgan Stanley is essentially a bifurcated wealth manager, he said. One firm services $2 trillion of assets, half from “really wealthy” customers who keep more than $10 million at the company and half from those with $1 million to $10 million who are “on the path to being much wealthier” or who keep money at other firms, he said.
The other firm is a half-trillion-dollar venture servicing customers with $100,000 to $1 million (supplemented by fewer than 1% of households with under $100,000).
The upper-tier firm is “the space we dominate” and that will grow by providing “intellectual capital” around client’s investment, tax and other planning goals, Gorman and other executives said in presentations to investors and the press this week.
The lower-tier unit can “pick up incremental growth” by deploying some robo strategies, but Gorman added: “This idea we’re some mass market firm, we’re actually not. We’re a firm dealing with really wealthy people.”
Morgan Stanley is not the first retail brokerage firm to target the ultra-wealthy, to be sure, but it is on a marketing campaign to convince brokers, customers and company investors that it has the most efficient platform for servicing client needs.
Following months of “beta” testing and a budget “in the billions,” the firm is now rolling out a program to encourage its almost 16,000 brokers and 7,000 client service associates at 600 branches to learn how to use new capabilities that include “personalized” daily mass mailings suggesting investment strategies to customers, instantaneous risk-management analyses of assets held at the firm and away and service enhancers such as allowing customers to share documents digitally.
“This will be a much more efficient business,” said Gorman, who has promised investors that wealth management will raise its pretax profit margins that hovered in single digits after the financial crisis to between 26% and 28% over the next two years.
Wealth management doesn’t need to hire more advisors or associates, said Gorman, who has previously noted that margins will be helped by the expiration this year of retention bonuses offered to brokers during the acquisition of Smith Barney.
CSAs are “repurposing their activities,” convincing customers to register for electronic authorizations so they can eliminate “millions of bits of paperwork…all the garbage they have to deal with” and focus on “real” client service. “A lot of them have Series 7s, they’re very intelligent and a lot of them chose not to be advisors,” he said.
Brokers, he added, don’t need to make dozens of phone calls to stay in front of customers, but will now be able to use smart-data, predictive analytic-enhanced messages that can be sent to their book in two seconds, he said. “We make that very easy for them.”
Very wealthy clients who brokers should be targeting won’t care about saving 20 basis points on a low advisory fee if they are shown risk analyses of their investments that can save them much more than that on tax decisions and portfolio allocations, he said.
There appears to be only one reason why a broker would eschew the new platform’s architectural efficiencies and face the prospect of repapering accounts and dealing with hundreds of pages of signatures, he implied.
“If your financial advisor left and went to another firm and, by the way, is telling you it’s because they have ‘better something,’ ask them how much they got paid,” he said.