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Morgan Stanley

Morgan Stanley Wealth Management Improves Profitability, Closes In on Top Competitor

The pre-tax margin of the bank's wealth management business is inching closer to that of Bank of America's GWIM unit, which includes Merrill Lynch.

Morgan Stanley improved the profitability of its wealth management business again in the third quarter and is closing in on one of its top competitors.

Morgan Stanley Wealth Management, which includes the Wall Street bank's network of 15,655 advisors, reported a pre-tax margin of 27.1 percent during its earnings Tuesday morning, up from 26.8 percent in the second quarter and 26.5 percent a year ago. That's just behind Bank of America's Global Wealth and Investment Management, or GWIM, unit which includes Merrill Lynch and reported pre-tax margin of 28 percent for the quarter on Monday.

Executives at both companies have made it clear they plan to make the businesses more efficient.

In January, Morgan Stanley CEO James Gorman said the goal was for the wealth management business to achieve pre-tax margin between 26 and 28 percent in 2018. Then, Bank of America CEO Brian Moynihan said during his company’s fourth quarter earnings call that a 30 percent margin was possible through arbitrage and improvements to technology in his bank’s wealth management unit, but attached no timeline to the goal.

In its latest earnings, Morgan Stanley said the improved profitability was a reflection of growth in bank lending and positive fee-based flows. But the brokerage has also been investing heavily in technology and altered its advisors' compensation plan to encourage them to use the new tools available.

Non-compensation expenses in the third quarter were $790 million, up from $775 million a year ago due to continued investment in technology.

Morgan Stanley Wealth Management's average annualized revenue per broker remained flat in the third quarter at $1.1 million, up 8 percent from the start of 2017. Broker headcount is up slightly to 15,655, compared with 15,632 in the second quarter, but  down 1 percent from a year ago.

The unit reported pre-tax income of $1.2 billion compared with $1.1 billion in the third quarter of last year. Net revenues in the third quarter was $4.4 billion, compared with $4.2 billion a year ago.

The bank performed well overall in the third quarter, despite a seasonal slowdown in the summer. It reported net revenues of $9.9 billion, compared with $9.2 billion in the third quarter last year. Net income was $2.1 billion, or $1.17 per diluted share, up 19 percent from a year ago. 

 

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