Profits soared while the advisor ranks continued to decline at Morgan Stanley Wealth Management, according to the latest quarterly earnings reports.

The firm's profits increased to $535 million from $421 million, up 27% for the same period a year ago, the earnings reports released today show. Total client assets at the same time rose to a record $2.047 trillion, edging the firm past the industry's previous leader Merrill Lynch, a part of Bank of America's wealth management unit.

Morgan also reported its advisor ranks continued to decline, dropping to 15,915 from 16,076 for the prior quarter, and 16,426 for the same period a year-ago. Though Morgan has fewer advisors, it still fields the largest brokerage force among the wirehouses. Productivity, meanwhile, has been rising and reaching record highs.  Morgan reported that revenue per advisor increased to $959,000 per advisor for the quarter from $944,000 for the prior quarter and $878,000 for the year-ago period.

"Our wealth management clients remain well engaged with their advisors," CFO Ruth Porat said during a conference call with analysts.

The compensation to revenue ratio fell slightly, dropping to 58% from 60%. This gets CEO James Gorman closer to his goal of having a ratio of around 55%.

However, the firm could face additional compliance expenses in the near future. When asked about the Department of Labor's fiduciary proposal, Porat noted that there were still a number of issues to address.

"At this point we do not expect a meaningful impact on our business.  But we do expect increased compliance costs," she said.

STRONG PERFORMANCE

The firm's wealth management unit has performed well recently. It's pre-tax margin record a record high of 22%, up from 19% for the same period a year ago. Porat attributed wealth management's successes in part to investments in the business, including technology.

Gorman added that wealth management's leaders have been a key factor in the unit's success, noting how much the business had improved since the financial crisis.

"The strength of that business has been a real additive," he said. "These businesses also do well in large part because of the teams running them. I think that makes a difference," he said.

Companywide, Morgan Stanley had a strong quarter, reporting that profits rose 59%, increasing to $2.4 billion from $1.5 billion from the year ago period. Profits were boosted in part by strong growth in revenue from trading, which rose 23% to reach $3.6 billion.

Total non-interest revenues increased 7% to $9.3 billion while total non-interest expenses increased at a slower rate, 6%, reaching $7 billion.

Earnings per share rose from $0.75 to $1.21. 

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