September 22, 2022 By Vaseline

Morgan Stanley tracks “financial DNA” to find clients hidden from view

Morgan Stanley Stained Glass Bloomberg

Morgan Stanley plans to lure more wealth management clients out of its retirement and self-managed accounts by piecing together what the company calls each client’s “financial DNA.”

An internal technology initiative called “Project Genome” is using data analytics and fintech partnerships to optimize the personalization of offerings for clients across the bank’s workplace and e-trade channels, Morgan Stanley Co-President and Head of Wealth Management Andy Saperstein told the audience at a recent investor day. The company forecast that it will add $1 trillion in net new money to Wall Street every three years, thanks in large part to its use of technology like the Genome program. It’s currently “in the early innings,” Saperstein said at the Sept. 13 event.

Anthony Bunnell, head of retirement at Morgan Stanley at Work, said in an email that the bank was “committed” to using “technology solutions to drive the growth and evolution of our workplace strategy and retirement solutions business.”

Project Genome launched on Feb. 1, a company spokesman said in an email, but its arrival has been relatively quiet. The said bank the effort earlier this year at a call for results, when Chief Financial Officer Sharon Yeshaya said the project, along with other internal technologies, could help “understand our customers better and give us the technology and that agility to put advisors and the right advisors to the right ones.” Place to provide participants in the workplace.” While Project Genome was presented in a Company slide show and public statements since then, Saperstein’s comments have been the most detailed to date.

Historically, the financial services and wealth management industries have viewed clients “through segmentation, which is a very rudimentary way of thinking about a client,” Saperstein said in the investor presentation. “Only broad brushstrokes.” Segmentation divides customers into tiers of service based on metrics such as the size of their assets and the level of complexity of their portfolios. These crude measures have resulted in potential customers slipping through to other units of the bank unnoticed when they could have been sold new products and services instead.

Saperstein described Morgan Stanley’s efforts as “thinking of each individual customer as an individual genome…individualized DNA.” With 16.5 million client relationships — a number he says is “growing very fast” from just 2.5 million two years ago, who were added mostly from the workplace and through self-directed channels — offering a personal touch early on is crucial . Times of market volatility like now could be the perfect moment to do more business with these clients, he said.

“A lot of clients consolidate their wealth with Morgan Stanley” during periods of volatility, he said, adding that those with outside accounts “feel they’re not fully prepared for this type of market … Clients who haven’t been Council in.” Catch up on periods of low volatility “seek an advisor”.

In the case of employees with corporate stock plans, the firm manages “the actual wealth that those investors have when they become full-service customers [at Morgan Stanley] is somewhere around nine or ten times the assets” that were transferred, Saperstein said.

Morgan Stanley is also looking to complement its wealth management strategy with aggressive growth in retirement solutions, institutional advisory and family offices, Saperstein said.

The $10 Trillion Question
Wealth management, once the backbone of Morgan Stanley, has become the firm’s rainmaker led by CEO James Gorman in the past decade. In a July research report, Citi analyst Keith Horowitz and associates estimated that wealth management accounts for “45% of the bank’s firm-wide revenue.” Along with Charles Schwab, Morgan Stanley has “gained significant market share” in the wealth space over the past five years.

The bank’s advisor-led channel exceeded $3.4 trillion in customer assets by the end of Q2 2022, but its workplace and self-directed channels had $1.1 trillion in customer assets, of which $323 billion -Dollars were not transferred, according to the company’s latest earnings report. The company is betting its technology will enable advisors to convert more of its 7.8 million self-determined households and 6.1 million corporate stock plan participants into clients for more lucrative financial advisory services as their wealth grows.

Citi analysts wrote in their report that Morgan Stanley had $4.8 trillion in client assets in the first quarter of this year, followed by Schwab’s $7.9 trillion. In his Second Quarter ResultsMorgan Stanley reported $4.2 trillion in client assets. For the same quarterBank of America rival Merrill Lynch reported total customer assets of $2.8 trillion and $1.1 trillion in assets under management.

Analysts named Morgan Stanley the “most valuable company in our universe” of wealth management due to a combination of “superior returns, low-risk profile and above-average growth” and noted that the company has led the technology space for years through early investments in efforts to move all of its data systems into to integrate into a platform. “MS has long believed in the importance of best-in-class technology that enables its advisors to offer advice and find ways to free up their time,” the analysts wrote, and it “continues to pay dividends.”

While personalization at scale “is often cited as a longer-term vision,” the Citi authors said, “we haven’t seen it yet [it] be used effectively in practice in financial services, as it is very difficult to achieve.” But they were optimistic about Morgan Stanley’s plan, given the strong technology that unifies various programs and its current position as a leader in several areas.

“The consolidation of assets held off MS, which totaled approximately $10 trillion in Q1 ’22,” would be a “significant growth opportunity” if the company exercised caution in execution, the Citi report said and noted comments from a Morgan Stanley manager that recognizing the entirety of a workplace client’s assets can take two to three years.

By evaluating each data point a customer leaves, the bank can use it Insights into behavioral finance to propose tailored products and services across different platforms for that client at appropriate times throughout their financial life, potentially beating a competitor for that client or enticing the client to switch businesses later. “We will grow with them over time. So we always have something for them,” Saperstein said at the presentation, hinting that the strategy aims to reach the affluent masses as they climb the wealth ladder.

Over time, he said, the data sequencing strategy here, which will complement the bank’s Next Best Action AI software to help advisors propose tailored financial products in the advisor channel, “will become a much larger part of our growth in our new assets.” . We are only in the early stages of learning how to think about customers in this genome-like concept.”

Fintechs: partners instead of acquisitions
The bank’s targeted mass marketing approach is “much more likely to be seen in the world of technology,” Saperstein said. As a result, Morgan Stanley has hired numerous non-industry professionals to play roles in this campaign, he said.

In recent years, the bank went on a buying spree, Acquired Main Street investment platform E-Tradeinvestment company Eaton Vance and stock plan administrator solium. The acquisitions gave the bank multi-channel offerings and expanded its referral network across the income spectrum of potential customers. Nevertheless, the bank is not planning any fintech acquisitions.

“We don’t need to buy technology companies,” Saperstein said during the presentation in response to an analyst’s question about acquisition plans. Morgan Stanley instead prefers to partner with fintech or technology companies to create tools that integrate well with the enterprise-wide system to make it easier to use for both clients and advisors, Saperstein said.

New York-based fintech Vestwell, an online retirement plan recorder for small businesses and individual savers, is one such partner. CEO Aaron Schumm said in an interview that he’d seen Morgan Stanley “appear before players in the wealth industry” with such partnerships recently, particularly when it came to certain “underserved” groups like small businesses.

For the most part, small “employers weren’t given the ability and flexibility to offer their own employees a savings solution in a cost-effective and flexible manner,” Schumm said, adding that legacy technology “didn’t allow them to adequately serve their customers.”

However, when Morgan Stanley partners with Vestwell to target this underbanked group and uses similar partnerships to reach other companies, it puts the bank in front of corporate employees who could become prospective clients in its financial advisor channel.

In this respect, “there is a major first-mover advantage in this area,” said Schumm.

make talent happy
Saperstein’s presentation speech came a few days after the The company launched its Corporate Retirement Portal for financial advisors as an extension of the WealthDesk program.

Retirement websites and apps are largely unpopular with customerswho complain about lack of usability; Financial advisors often face a similar struggle, as they spend much of their time during the workweek performing unwieldy administrative tasks on inefficient business software.

With Morgan Stanley’s portal, “plan consultants no longer need to rely on outside resources and tools to manage their pension books as the bulk of the business is retained with our recordkeeping partners,” said Bunell. Instead, advisors can view all of a client’s multi-vendor retirement plans in one place. “Across the pension industry, retirement planning and saving is an issue that both plan sponsors and participants need help with,” added Bunnell.

Morgan Stanley’s aggressive technical upgrades and investment in user experience is also a strategy that has won points with advisors.

In a year when other wirehouses have so far lost consultants to smaller competitors or independent companies, Morgan Stanley stands out as a rare big firm with a net gain of 87 consultants, according to industry recruiter Jason Diamond. Diamond, who co-wrote a report last week on the consultant movements in this area, said the company’s strong technical infrastructure has contributed to this success in recruitment.

“They have an excellent platform,” Diamond said in an interview about Morgan Stanley. “Certainly, in terms of technology and investment, they are at the forefront.”