Regionals Deal With Deeper Reductions In Profitability, Wirehouses Outperform During The Pandemic
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.