Morgan Stanley plans to expand its wealth management unit’s client base in the next five to seven years by capturing one million workplace plan participants who will be serviced mainly through digital channels.

The firm’s purchase last year of Solium Capital, an administrator of workplace equity plans, plays a key part in the strategy. Solium was a provider of cloud-enabled services for global equity administration, financial reporting and compliance.

Morgan Stanley renamed the unit Shareworks and as of October had increased its corporate plan sponsor clients to 3,900 companies which have roughly 2.7 million employee participants. Among the planned offerings at the time were deferred compensation management, student loan refinancing and health savings accounts.

The wirehouse counts 5,000 employees with access to Shareworks as its clients and is aiming to convert one million employees into clients by 2027.

The newly-unveiled strategy is aimed at growing its mass affluent client base, a goal that has been in place for several years.

James Gorman, Morgan Stanley’s CEO and chairman, pushed back on an analyst’s characterization of the strategy of capturing workplace plan participants as going “down-market.”

James Gorman (Getty)

“I see it less as … going down-market and more as expanding the universe of clients,” Gorman said during a conference call in which the company unveiled the growth strategy.

Morgan Stanley has stressed its commitment to high- and ultra-high-net-worth investors willing to pay significant fees for advisory services the wirehouse provides.

But in recent years, the wirehouse has been stepping up efforts to cater to mass affluent clients, such as when it launched its Morgan Stanley Access Investing online platform in 2017.

Growth in the wealth management revenues under the workplace plan participants strategy would not flow from individual advisors and their teams, based on Gorman’s comments.

“They do not want or need one of our live financial advisor teams, that’s for sure. But that doesn’t mean they can’t have access to what Morgan Stanley can deliver,” Gorman said about the targeted clients.

Pulling the comp lever?

On the conference call, Gorman was asked by an analyst whether there are plans to further “pull the comp lever” to raise the wealth management unit’s profit margins, actions that would make it harder for advisors to earn the same amount of compensation as they do now.

Gorman didn’t answer the question but addressed the analyst’s characterization of the comp grid.

“We’re not using the grid to drive profit margin; we’re using the grid to change behavior,” he said.

In December, Morgan Stanley unveiled roughly 10% increases to its advisors’ compensation grid thresholds for 2020, effective April 1. Those threshold increases targeted advisors who generate less than $5 million in revenues a year.

Gorman described the recent threshold increases as “modest,” adding that the “best” advisors embraced them. He said they help “professionalize” advisors and have improved their average yearly revenue generation over the past decade from $300,000 to $1 million.

“The grids have got to be aligned with their [advisors'] interests as well,” Gorman said.

2019 earnings

Morgan Stanley’s wealth management unit posted record revenue and substantial growth in assets in the last quarter of 2019 despite losing financial advisors.

Client assets rose to $2.7 trillion in the fourth quarter, a 5% gain over the previous quarter and a 17% increase over the end of 2018, according to Morgan Stanley’s latest earnings report.

Client assets per wealth management representative, meanwhile, rose to $175 million in the fourth quarter of 2019, a 6% increase over the previous quarter and a 19% boost over the prior year.

The firm says it had 15,468 wealth management representatives at the end of the quarter, compared to 15,553 at the end of the third quarter and 15,694 at the end of the fourth quarter of 2018.