Finally, some good news for Morgan Stanley’s retail brokerage. The unit reported strong second-quarter gains Wednesday, including an impressive surge in advisor productivity, which hit an all-time record for the firm.
In the firm’s morning conference call discussing the results, Chief Financial Officer David Sidwell said: “This very valuable business is on a long-term growth trajectory.”
Earnings were up 33 percent, to $157 million, versus the second quarter last year, while pretax profit margins inched up to 11 percent from 10 percent a year ago, and 2 percent in the first quarter. The margin improvement still leaves the unit well behind its peers, which tend to hover in 15 percent-to-20 percent range.
However, the brokerage made great strides in average advisor production during the quarter, an area where it has long lagged other firms. Average annualized revenue and total client assets per advisors increased to $653,000 and $78 million, respectively, for the quarter, both records for the firm. That’s up from $554,000 and $70 million in the first quarter, and $472,121 and $59 million in the first half of last year. By comparison, Merrill Lynch advisors produce average annual revenue of $766,000 and UBS advisors average over $700,000.
Sidwell attributed the gains to a reduction in lower-producing FAs, both through attrition and trainee layoffs, as well as productivity gains. It also helps that Morgan reps are doing better at attracting wealthy clients’ assets. Clients with assets in the $1 million-plus range accounted for 65 percent of total assets in the quarter, up 11 percent from the prior year. And the brokerage took in net new assets of $2.4 billion for the quarter, bringing total client assets to $639 billion, a 4 percent increase from last year’s second quarter. That compares to flat client asset growth in the first quarter, said Sidwell.
Meanwhile, the migration to fee-based products and away from commissions hasn’t let up. Client assets in fee-based accounts rose to $190 billion, increasing as a percentage of total assets to 30 percent from 27 percent a year ago. Sidwell says this should continue, although the firm hasn’t set a specific target for fee-based assets. “We should see continued growth, though at some point you do have clients who want to be charged on a transaction basis rather than a fee basis,” he said.
Advisor headcount fell to 8,179 at quarter end, down from 9,000 at the end of the first quarter, in part due to layoffs of 500 trainees during that time. The firm also closed 11 retail locations during the quarter and will continue branch closures in the second half. “We are investing in the business to achieve productivity and margins, but also rationalizing costs,” said Sidwell.