What will the next generation of clients expect from wealth managers? How will the industry bring in new talent? Here, Greg Fleming, president of Morgan Stanley Wealth Management, talks about these issues and how his firm is addressing them and preparing for the future.
This interview is a sneak-peek at our November special report, State of Wealth Management. On Wall Street interviewed the industry's top executives for this deep look at the wirehouses and regional broker-dealers. Check out this upcoming report to see more of our interview with Fleming and other industry leaders.
How are millennial clients different than previous generations?
Digital is very important there. And this time is different.
In fact, there is some research to suggest that 1985 is a marker. Before 1985, human beings didnt function as differently from previous generations. But people born after 1985 were born into a world that is very technology-driven. We as the purveyors of wealth management need to be very aware of that. It has to shape the way that we approach them.
If you look at surveys of millennials, they are much more comfortable interacting on a digital basis for lots of things in their lives rather than face-to-face. You just need to know some millennials to know this. They text each other while in the same room.
This is even different than the industrial revolution. When my father, who is now 81, talks about how things, when he was a boy, were different than when I was boy it took almost 50 years to have that dramatic difference, to say, "Wow, you listened to the radio when I watch TV?"
Now you can have one generation [go by] and say, Wow, you didnt have cell phones in the mid 90s? Its not like a 50-year gap. So the degree of change is dramatic.
Were very cognizant of this and were preparing for it. We believe firmly and staunchly in advice for the overriding number of people, and we think that will be true, 20, 30 and even 40 years from now, particularly for those who have a lot of money to manage. But that doesnt mean that we will stand in the way of digital evolution.
Even wealthy, high-end clients are going to want the firm to be technologically state-of-the-art. Were aware of that and intent on offering that.
Is the industry attracting enough young talent into the business?
I am not convinced, and Im not sure how available this information is, but this notion that advisors are older than average has been out there a long time. I dont think the average age of advisors is much higher than it was in 2000.
Having said that, I did just give you the argument that I believe there is a compression in the time frames of what is happening. Millennials have grown up very differently than any other generation. So it is very important that organizations like ours adapt to that and hire advisors who understand that.
We want to have a good representation of millennials and younger advisors in our ranks. Because of that, we continue to have a financial advisor training program. Its a big program. Right now we bring in about 900 new advisors. Its expensive for us to do that. Its time consuming for managers. And it has to be strategically important if you want to have it and maintain it.
One of the reasons we do have it is because its important to attracting, developing and investing in advisors that are ultimately, generationally additive to what we already have.
On Wall Street estimates that Morgan has recruited advisors managing nearly $8 billion in assets including two of the largest moves of the year. To what do you attribute your recruiting successes?
Recruiting is an important part of what we do because it can be invigorating in a branch. In particular, if there is an advisor or team that wants to be part of what we are building, we are interested in that. But we think we have the best advisors, and we certainly have scale at about 16,000 advisors. Recruiting is important, but its not the top priority.
We want our branch managers focused first and foremost on helping the financial advisors they have, helping them partner, helping them serve their clients more effectively, on streamlining decision making to help foster that entrepreneurial culture those are our priorities. And I convey that all the time around the organization.
Recruiting fills in around that. We do bring in advisors and teams. We like the ones who have been in one place for a long time, who say, We agree, your model is different and we can thrive in that model. I believe that in the final analysis that is why we are successful recruiting.
How is the industry changing?
One of the changes over the last decade or so that exists both at Morgan Stanley Wealth Management and at many of our large competitors, is the migration of advice-giving from just the asset side of the clients balance sheet to the liability side as well.
If you go back to a pre-2004 timeframe, just to go back only ten years, the business was still a primarily transactional business as prosecuted by most financial advisors on behalf of clients. The advisory side of the business in terms of the clients assets was fairly embryonic; since then there has been enormous growth.
Our fee-based assets at Morgan Stanley exceed $750 billion, and that is up from a much smaller number several years ago. That is true across the industry. Youve had the explosion of fee-based assets for financial advisors on behalf of their clients.
More recently youve had a significant growth of advising clients on the liability side of the balance sheet: mortgage products, securities based loans for high net worth clients, tailored lending, and theres been tremendous growth in that both at Morgan Stanley Wealth Management and across the industry as a whole. In fact, within many wealth management businesses is embedded a big bank.
We carry the cash balance for many of our clients and those deposits add up to about $130 billion dollars. The best thing we can do with those balances is to lend them back to clients, in the form a loan or tailored loan against certain types of collateral. And weve been very focused on developing that business and have done so.
What's the future like for Morgan?
From the standpoint of the business itself, we recently passed a milestone of $2 trillion in assets under management for our clients. We were pleased with that because it is a lot of money and says a lot about how much confidence our clients have in us. We want to continue to build that and grow that. We think that over the next five years or so, that number could be $3 trillion.
We are also focused on building our bank. We have a lot of capacity to lend to our clients. We want to continue to build up the size of the business. Over time we think we can continue to make it bigger.
Lastly, the connectivity between wealth management and the other parts of Morgan Stanley has been dramatically enhanced over the last couple years. But we think we can do a lot more there. My partner in the institutional side of the firm, Colm Kelleher, and I work very well together. We set in place a culture and a set of priorities that everybody is on board with. The notion that we work together wherever it makes sense to serve the client is ensconced throughout the firm.
Were taking advantage of the scale and risk management and the things that the institutional side of firm does very well. Were bringing more and a broader set of products to our clients. We think we can continue to do more connecting the different businesses of the firm.
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