Morgan Stanley’s global wealth management group reported first-quarter income Wednesday 93% lower than the year earlier.
The investment bank has looked to bolster the ailing group in recent months, announcing last Thursday that it was reorganizing the division in an effort to streamline it.
“This is a business very much in transition — a transition that began in the third quarter of last year when we started making some overdue changes,” chief financial officer David H. Sidwell said in a conference call Wednesday.
The global wealth management group’s first-quarter income was $23 million, down dramatically from the $353 million posted in the first quarter last year. The results were negatively affected by an $80 million compensation expense required under new accounting guidelines, Morgan said.
The group had about 9,000 financial advisers at Dec. 31, a decline of 1,471 because of layoffs and attrition that Mr. Sidwell attributed to “intense industrywide competition.” But the company has begun “seeing a decline in net FA losses to competitors, particularly at more senior levels,” he said.
Net revenues from the group grew 4%, to $1.284 billion, Morgan said. Total client assets were $633 billion, a 2% rise from the year earlier. Client assets in fee-based accounts grew 10%, to $182 billion, and rose as a share of total assets, to 29%.
The wealth management group restructuring put James P. Gorman, the group’s president and chief operating officer in the additional role of national sales head, with direct oversight of Morgan’s financial advisers.
Mr. Gorman, who joined Morgan last month from Merrill Lynch & Co., is already having an impact on the group, Mr. Sidwell said in the conference call.
“He’s working hard to stabilize and motivate the FAs,” he said. Additional technology investments may be in store for the group, he indicated.
“I’m very bullish about Morgan with Gorman being on board,” said Lauren Smith, an analyst at Keefe, Bruyette & Woods Inc. in New York. Mr. “Gorman is very well regarded in the business and demonstrated strong leadership and the ability to execute at Merrill.”
Though Morgan anticipates positive changes, improved results may not show up for a few years in the group, Mr. Sidwell said.
In an internal memo provided to American Banker, Mr. Gorman said direct oversight of financial advisers was a key component of his plan to reinvigorate the global wealth management business.
“I believe that by focusing on the client-facing end of our business I will help ensure that we have the right structure in place to achieve our aspirations and stated goals,” he wrote.
The reorganization halves the number of regional divisions within the group and eliminates two layers of management between Mr. Gorman and the regional directors. Eight regions have been reduced to four whose directors will report directly to Mr. Gorman.
“This is absolutely yet another step in the right direction for Morgan Stanley,” said Ms. Smith of Keefe Bruyette. “The retail business … has really been a laggard business for them. It’s been in need of a lot of change for quite some time.”
The reorganization will create more accountability by eliminating management layers, she said.
Mr. Gorman wrote in the memo that the restructuring was one of several changes the company expects to announce within weeks. Morgan will “continue to bring new talent to our group, from both outside and inside the firm,” he said.
“I have repeatedly said that we must change and adapt in order to strengthen our ability to compete in the marketplace and better serve our clients,” he added.
Ray Harris, who was interim chief of the individual investor group before Mr. Gorman succeeded him, will continue to oversee managed money products, insurance, retirement services, trusts, planning, and marketing within the client solutions division as vice chairman of the global wealth management group, Mr. Gorman said in his memo.
“I have asked Ray to dedicate approximately half of his time to working with our financial advisers — visiting offices around the country and providing leadership and support to the organization,” Mr. Gorman said.
Chief executive officer John Mack’s hiring of Mr. Gorman has been perceived as a commitment to revitalizing the company’s ailing retail brokerage business.
Mr. Gorman is widely credited with improving margins and profits at Merrill Lynch’s brokerage division during his tenure there. After joining the Merrill retail business in 2000, he focused on luring wealthier clients to the company and bolstering its proportion of fee-driven business, shunting accounts with $100,000 or less to call centers.
He also aggressively moved to cut costs and promoted the Total Merrill campaign in an effort to persuade clients to turn to the company for all their financial services needs. Morgan has already begun slashing expenses, firing 1,000 underperforming brokers last year.
The wealth management reorganization also put two former Merrill executives in charge of Morgan regions. Jerry Miller, who was most recently the chief operating officer for global proprietary business in the Merrill Lynch Investment Managers division, was named director of Morgan’s Midwest region. And Richard Skae, formerly the head of the Northeast region at Merrill, now holds the same post at Morgan.
Margaret Black, formerly Morgan’s Southern California regional director, is now director for the West. And Bill McMahon, previously New York regional director, is now director for the Southeast.
