MORGAN Stanley’s record quarter in wealth management capped a banner period for one of Wall Street’s most-profitable businesses.
Client assets at retail brokerage Charles Schwab and the wealth arms of the six largest US banks surged US$5 trillion in the 12 months through September. That represented a 23 per cent jump as the group’s revenue from the business collectively topped US$84 billion so far this year.
A surge in stock markets has pushed client balances higher and attracted new customers to firms that are ramping up competition for affluent customers with welcome bonuses and new products.
Bank investors value the wealth business because it’s relatively steady and requires less regulatory capital than investment-bank arms, leading to higher profitability. Morgan Stanley’s wealth business posted a 37 per cent return on tangible equity so far this year, almost triple that of its Wall Street arm.
“It is clear that the industry is benefiting from strong tailwinds,” Steven Chubak, an analyst at Wolfe Research, wrote in a note to clients Wednesday.
The firms all trumpeted gains in a quarter that saw the S&P 500 reach a new high. Morgan Stanley had US$20.9 billion of wealth revenue in the first nine months of the year, giving it a US$4 billion gap over the nearest competitor. Bank of America’s wealth revenue jumped as client balances swelled 18 per cent to US$4.2 trillion. Schwab saw flows into the higher-end wealth business that it’s building jump by 65 per cent this year.
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“Our ultra-high-net-worth clients have been a particular area of focus,” Rick Wurster, Schwab’s incoming chief executive officer, said on a conference call with analysts. The firm has added wealth consultants as well as tax trust and estate experts to cater to the group, he added. Schwab is also rolling out an alternative-investments platform for qualified, self-directed investors with more than US$5 million in assets this quarter – another bid for their business.
More millionaires
The legions of the world’s wealthy are expanding thanks to gains in financial markets, according to a report by UBS Group. Millionaires already accounted for 1.5 per cent of the adult population analysed by the bank in 2023 and by 2028 will have risen in 52 of the 56 markets it surveyed. In some markets, the number of US-dollar millionaires will increase by as much as 50 per cent over next five years, it said.
Spending patterns between wealthier consumers and those lower on the income ladder have diverged sharply since the pandemic, bolstered by the ballooning value of assets. As the more-affluent group grows, it becomes more of a target for wealth managers.
That also means competition is only going to heat up. Goldman Sachs Group said it would be adding wealth advisers over the next several years and is focused on increasing its lending to rich clients. Citigroup, the smallest wealth manager of the bunch, said it’s starting to see momentum more than a year after bringing in Bank of America veteran Andy Sieg to build its business.
Wealth revenue at Citigroup jumped 9 per cent to US$2 billion, surpassing analyst predictions as CEO Jane Fraser touted 24 per cent growth in client investment assets, which she called a “good start to realising the potential that we have here.” BLOOMBERG
