April 6, 2023
Louis Diamond Quoted
by Carleton English
Morgan Stanley kept its head down and chin up amid the recent banking turmoil. If the company emerges without a scratch, it will be by design.
CEO James Gorman has pivoted sharply from the firm’s roots in investment banking and trading, turning Morgan Stanley (ticker: MS) into an asset-management giant. With more than $20 billion in recent acquisitions, primarily for discount brokerage E*Trade and fund manager Eaton Vance, the company looks far better equipped to ride through another bout of banking stress.
Some analysts see Morgan Stanley benefiting from the shakeout. A few advisors from First Republic have joined the firm since March, handling more than $12 billion in assets. “The current environment has given them a tailwind because of the sentiment that bigger is safer,” says Louis Diamond, president of Diamond Consultants, a financial advisor recruiting firm. “There is a subset of advisors who want to be at a big firm.”
Getting to $10 trillion also means that Morgan Stanley will have to keep advisors productive after luring them to join. “It’s not the end customers that are the real clients; it’s the financial advisor,” explains Chris Kotowski, analyst at Oppenheimer.
Recruiting advisors typically requires a payment of three times their trailing annual revenue. The payouts may be structured over several years, but in a competitive environment, Morgan Stanley may have to throw in sweeteners such as staffing promises and marketing budgets, analysts say. The firm will also have to invest in its “technology stack” to help advisors expand and serve more clients, according to Diamond.