Morgan Stanley Wealth Mgmt FA Count Up in Q3, Net Income Down 12% YoY

By Alex Padalka October 15, 2020

Morgan Stanley’s wealth management unit saw robust growth in client assets and added financial advisors after shedding them in previous quarters, but its acquisition of E*Trade and a settlement with regulators caused net income to fall.

The unit ended September with $2.85 trillion in client assets, which was a 7% increase over the previous quarter and an 11% increase year-over-year, according to Morgan Stanley’s third-quarter earnings release. 

The unit had $23.8 billion in fee-based asset flows in the third quarter, up from $15.5 billion in the same quarter last year. That brought fee-based client assets to $1.33 billion, up from $1.19 billion it had a year ago. Fee-based assets inched up from 46% of overall client assets at the end of June to 47% at the of September.

Client liabilities rose 6% during the third quarter, reaching $100 billion, which was also 16% higher year over year.

Morgan Stanley also managed to add 70 wealth management representatives during the third quarter, bringing the total to 15,469. However, that was still fewer than a year ago, when the firm had 15,553 representatives.  

Along with the growth in advisor ranks, client assets per representative rose to $184 million in the third quarter, which was 6% higher than in the prior quarter and 12% higher  year-over-year.

Annualized revenue per representative, however, slipped 1% from the second quarter, to $1.207 million — but that was still 8% higher year-over-year.

Meanwhile, wealth management revenue from asset management soared 11% from the second quarter of 2020, to $2.79 billion by the end of the third quarter, which was also 6% higher year-over-year. 

However, transaction revenue slipped 18% during the third quarter, to $880 million, although that was still 48% higher year-over-year. Net interest income revenue also slipped 14% during the quarter, to $880 million, which was also 15% lower year over year.

Regulatory charge, E*Trade deal

Net revenues in the wealth management unit nonetheless inched down, from $4.68 billion in the second quarter to $4.66 billion in the third quarter, but was 7% higher year-over-year.

In addition, while the unit saw a 2% drop in compensation and benefits expenses during the third quarter, non-compensation expenses rose 5%, to $853 million, which was also 9% higher year-over-year. The company attributes the increase primarily to “a $60 million regulatory charge in the third quarter and expenses associated with the acquisition of E*Trade, partially offset by lower spending on business travel and entertainment.”

Earlier this month, the Office of the Comptroller of the Currency announced that it fined the company $60 million over alleged lapses in protecting customer data on decommissioned equipment in 2016 and 2019 — over which the wirehouse also faces several lawsuits.Morgan Stanley concluded its $13 billion acquisition of E*Trade earlier this month.

The wealth management unit’s third-quarter net income applicable to Morgan Stanley inched down to $842 million, which was 1% lower than in the prior quarter and 12% lower year-over-year, according to the report.

However, net revenue for the firm overall was $11.7 billion during the third quarter, up from $10.0 billion a year ago, Morgan Stanley says.

“We delivered strong quarterly earnings as markets remained active through the summer months, and our balanced business model continued to deliver consistent, high returns,” Morgan Stanley chairman and CEO James Gorman says in a statement. “The completion of the E*Trade acquisition, the subsequent ratings upgrade from Moody’s, and the recently announced acquisition of Eaton Vance significantly strengthen our Firm and position us well for future growth.”

Morgan Stanley announced that it’s acquiring Eaton Vance for around $7 billion just days after getting the final approval for the E*Trade deal.

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