Wealth management organizations aren’t one dimensional and shouldn’t ever be seen that way. Circumstances can often dictate their collective profitability and success – and unforeseen circumstances can shed light on the depth and breadth of firms’ revenue streams. The same conversations about global investment banks having priorities that may stray from wealth management seem to sound a bit differently in the midst of a pandemic. Revenue and profits that are tied directly to asset prices (i.e. wealth management) took a relative beating, while other departments held up.
A great example of this dichotomy is Raymond James and Ameriprise’s performance juxtaposed versus Morgan Stanley’s over the past week of so. Both Raymond James and Ameriprise announced reductions in overall revenue and profitability (with Raymond James even announcing the need to cut expenses across every level) while Morgan Stanley ballyhooed a knockout quarter; so much so that James Gorman took to all of the finance shows to smile and glad-hand.
Raymond James announced revenue, profits, and return on equity of -34%, -8%, and -42% for the quarter, ouch. Ameriprise announced revenue and profits that were down -28% and -7%, also, ouch. Morgan Stanley, on the other hand, announced increases of +6% and +16% respectively (to say nothing of the firm’s +73% increase in trading revenue). That breadth and depth of quarterly earning power resonate with advisors looking at a potential ‘knight in shining armor’.
The takeaway here is that balance sheets matter when advisors are evaluating a firm’s ability to add an extra 5-10% to client acquisition and retention. Dealing with short term expense cuts versus extolling the firm’s strength in the midst of a crisis is a net ‘win-win’ for Morgan Stanley versus Raymond James. You better believe that those stats and dialogue will be used when the firms respectively meet each other on the recruiting playing field.
Neither Morgan Stanley or Raymond James are perfect organizations – both of them have their pros and cons – but as of this quarter and these circumstances that are 2020, Morgan Stanley holds an edge.
Morgan Stanley is the kind of brand that elicits all sorts of emotions and responses from advisors across the spectrum. At any point in the past decade, they’ve played the role of hero and villain several times. If you’re a legacy Smith Barney broker you aren’t a fan, but if you’re a legacy Morgan Stanley broker you feel differently. But generally, the proof of a firm’s overall strength is found in its recruiting.
So what is the trend with Morgan Stanley currently? Beyond the commentary about their exit from the protocol (which we don’t like, but it remains a reality) Morgan Stanley is as strong a brand with large teams and advisors as exists in wealth management today. Some of the industry’s biggest teams have moved to MS in the past year while the firm has consistently announced historically low attrition rates. And the reason has to do with leadership and results.
Whatever you think of the ‘big box’ wirehouse model, Morgan Stanley has basically perfected it. Yes, there are nuanced issues that anyone can point at that may be undesirable, but some of the wisest teams we know have taken their talents to Morgan Stanley. Those ‘smart’ teams point to the true depth and breadth of serving HNW and UHNW clients with the broadest spectrum of products and services in the industry. To be clearly summarized: there is still a place in wealth management where the logo and brand on your business card matter.
As per leadership at the firm and their latest quarterly results, they crushed it:
Morgan Stanley reported adjusted EPS of $1.96 on $13.4 billion in revenue. Both numbers exceeded analyst expectations of $1.12 and $10.3 billion, respectively. Revenue was up 30% from a year ago.
That kind of outperformance in the midst of a pandemic and market chaos goes to leadership and execution. Again, the kind of attributes that matter to big teams.
And to recruiting, Morgan Stanley remains ultra-aggressive in pursuing ‘Tier 1’ players. We’ve found that they won’t be outbid for large, quality teams. Add that reality to their brand recognition and balance sheet/quarterly results – maybe they should be considered as the new and improved ‘thundering herd’.