Morgan Stanley paying customers have seen their rates drop an average of six basis points over the past three years, according to the bank’s report. reports to the Securities and Exchange Commission.
Total customer fee rates fell on average to 70 basis points in 2020, from 73 in 2019, 74 in 2018 and 76 in 2017, according to the reports.
Averages of Morgan Stanley account fee rates in basis points Source: Documents filed with the Morgan Stanley SEC Account type 2017 2018 2019 2020 Managed separately 17 16 15 14 Unified managed 101 99 100 99 Adviser 86 84 86 85 Investment manager portfolio 97 95 95 94 Sub-total 77 76 74 73 Cash management 6 6 6 5 Total customer credit commission 76 74 73 70
A bank spokesperson declined to comment on the average fee rate changes reported to the SEC.
Earlier this year, Morgan Stanley CEO James gorman dismissed pressure on fees as a concern for the bank.
“I don’t think you will see any significant price suppression on the wealth management platform,” he told analysts on a call in January to discuss Morgan’s earnings. Stanley in the fourth quarter.
Different groups of clients pay different fee rates, so the consequences of fee pressures for any wealth management entity depend on the “allocation of activities,” Gorman said.
The pre-tax profit margin of Morgan Stanley’s wealth management unit will exceed 30% over the next 10 years, Gorman predicted. Gorman and Morgan Stanley’s CFO, Jonathan pruzan, also noted that the net assets of new customers increased by $ 175.4 billion in 2020 compared to the previous year.
Some in the industry say, however, that cost cuts are clearly underway.
“We have found that the percentage of investors who are unaware of the cost of advice or think it is free has dropped significantly over the past few years,” says Marina Shtyrkov, senior analyst at the research firm Cerulli Associates.
In 2011, 65% of investors “had little idea how much they were paying or whether they were paying for advice. But that number has now fallen to 45% in 2020, ”she said, citing the results of her company’s survey. Consumer awareness of the fees brings them down, she says.
Customers with fewer assets usually pay higher fees, according to Shtyrkov. But customers with less than $ 2 million in assets saw their fees decrease, while customers with between $ 2 million and $ 5 million in assets saw their fees increase, according to data from Cerulli comparing 2015 rates. to 2020.
However, customers with more than $ 10 million also saw their fees decline during that time, according to the same data.
Morgan Stanley is offering many clients who are threatening to leave because their financial officers left ship a one-year moratorium on fees and significant discounts in the years to come, according to both a financial adviser who recently left. the brokerage house and asked not to be named, and Danny Sarch, president of the recruitment firm Leitner Sarch in White Plains, New York
“It has always been part of the toolbox for retaining customers …
Although Morgan Stanley senior executives stress the importance of increasing client assets, other factors are helping to keep the brokerage’s profitability up despite the fee cuts, same former financial adviser says by Morgan Stanley, Sarch, and Bill Willis, president and CEO of recruiting firm Willis Consulting in Palos Verdes Estates, Calif.
Morgan Stanley has increased its income by charging small household accounts what the three call “nuisance fees” – typically borne by clients with few assets, including fees for low balances, inactivity and loan applications.
“They demand that small households take over for larger ones,” said the former Morgan Stanley advisor.
In response to the fee cuts, Morgan Stanley and other brokerage firms have also cut compensation for financial advisers, according to Sarch.
Morgan Stanley and other brokerage firms “feel [the] heat ”on how to make up the difference after the fee cuts, he said. “There are constant small denominations that take money out of the adviser’s pocket,” he adds.
Morgan Stanley has also deferred compensation on a more aggressive and invasive basis than other companies, and some of that compensation is never paid if advisers leave before it’s vested, Willis says.
“People leave for a number of reasons,” Willis explains, and when they do, they often “leave money” behind, saving Morgan Stanley from claims expenses. For Morgan Stanley, “it’s a lot of money that is there that may or may not be paid in the future,” he says of deferred compensation.
Overall, Morgan Stanley’s compensation and benefits spending for its wealth management unit increased 12% in 2020 to $ 10,970 million, according to the bank’s 2020 annual report to the SEC .
Additionally, Morgan Stanley increased its total amount of employee loans in 2020, which is typically used for recruiting advisors. Employee loans increased from $ 2.88 billion in 2019 to $ 3.24 billion in 2020, according to the same 2020 report.
In comparison, UBS recruiting loans fell 9% to $ 1.87 billion and other loans to financial advisers fell 15% to $ 697 million from 2019 to 2020, according to the bank’s annual report filed with the SEC, which did not include average client advisory fee rates.
Merrill Lynch parent Bank of America and Wells fargo did not include details of advisor loans or advisory fee rates in their annual reports filed with the SEC last month.
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