Morgan Stanley’s announced $13 billion all-stock acquisition of E*Trade Financial pairs an "iconic brand’ with a "tech-driven company," according to the company’s press statements about the deal unveiled on Thursday.

Together, the two companies will have $3.1 trillion client assets, including $360 billion in self-directed accounts. The two companies say another $7.2 trillion in client assets will be "held away" — making those ripe for financial advisors and robo-advisory service marketing teams to pursue.

“We’re not messing around. We’ve got access to many millions of clients now, and we get there immediately with a world-class player,” Morgan Stanley CEO James Gorman said during a call with stock analysts to discuss the deal.

The transaction, the biggest acquisition for a U.S. bank since the 2008 recession, has huge implications for FAs at Morgan Stanley and for the industry. Scroll down for slideshow of five takeaways for FAs.

Workplace-focus strategy

Morgan Stanley is doubling down on a workplace-focus strategy, which it first identified in September last year and stressed earlier this year. It’s a strategy that matches those unveiled earlier this month by Merrill Lynch parent company Bank of America and reinforced after the July 2019 acquisition of United Capital by Goldman Sachs.

All three institutions are counting on their mergers and rollouts to add clients and assets through workplace channel offerings. All three are bolstering the services they offer related to managing companies' stock plans and are accommodating the financial services needs of corporate clients’ employees.

With the E*Trade purchase, Morgan Stanley adds that company’s stock plan administration unit, Equity Edge Online, to its own similarly focused Shareworks unit, which the wirehouse renamed after acquiring Solium Capital in 2019.

If the Morgan Stanley and E*Trade deal goes through, the new company will have a stock plan administration unit with a total of $580 billion in client balances and 4.6 million participants. The pairing will lead to referrals galore for the wirehouse’s financial advisors, according to Gorman.

James Gorman (Getty)

“We love our financial advisors. We have nearly 16,000. I think this is a fantastic way to augment what our financial advisors are doing for their clients and also provide referrals into them,” he told analysts.

Outsiders, however, expressed skepticism about the full -scale benefits of those referrals, however. They will most likely come only after FAs sign agreements that bar them from taking those clients with them if they leave Morgan Stanley, according to Shirl Penney, the CEO of Dynasty Financial Partners, a network of RIAs. FAs also likely will receive lower payouts on those clients’ revenue streams, Penney predicts.

Capitalizing on millennials’ zeal for robo services

Morgan Stanley intends to capitalize on millennials’ zeal for robo services, while not sacrificing its stature with its FAs’ high-net-worth clients.

“Having access to this younger demographic and acknowledging that demand for digital solutions is critical to the growth of our business. And as these clients’ needs become more complex, we’ll continue to serve them through the current Morgan Stanley offerings,” Gorman told analysts.

About 14% of Morgan Stanley customers have E*Trade accounts, and about 6% of E*Trade customers have accounts at Morgan Stanley, according to Laura Varas, CEO and founder of Hearts & Wallets data analytics firm.

But the pairing of Morgan Stanley’s HNW emphasis with E*Trade’s downmarket offerings could potentially spur some grumbling and even departures among the wirehouse’s advisors who could view the deal as stripping the sheen from their own branding.

Some Goldman Sachs FAs began hunting down exit options after the firm acquired United Capital and its advisors’ mass affluent — rather than HNW — crowd, according to recruiter Bill Willis, president and CEO of Willis Consulting in Palos Verdes Estates, Calif.

The RIA channel not a prime motivator for the deal

Morgan Stanley’s ambitions with this new deal lie largely outside the RIA channel, even though E*Trade recently penetrated that market.

About E*Trade’s RIA unit, Gorman told analysts: “It wasn’t a prime motivator of the transaction. We’ll play that out over time.”

But E*Trade’s CEO Michael Pizzi stressed the potential of the RIA channel.

With Morgan Stanley acquiring it, E*Trade will increase “the amount of capabilities we are going to be able to bring to drive that growth,” Pizzi said.

Penney predicts the planned merger will not have imminent consequences for the RIA channel. But Morgan Stanley may deploy the E*Trade deal as “a defense mechanism,” telling its FAs who are thinking of fleeing to an RIA to wait since it might develop that channel more now, he said.

Expecting few overlaps and disruptions

As for integrating the two companies’ platforms, the two merging companies’ executives say Morgan Stanley's FAs can tell clients to expect no disruptions for users of either E*Trade’s or the wirehouse's products and services.

“There will be no disruption to the E*Trade clients … There will be no disruption to the Morgan Stanley advisors’ clients at all. We will simply be adding services and referrals into that network,” Gorman said.

Similar culture, but ‘maybe a little different dress code’

As far as corporate culture integration, E*Trade’s Pizzi, who will manage the paired company’s e-brokerage business, encouraged Morgan Stanley’s Gorman to look in his closet for a pair of denim jeans.

“I think we share a lot of elements of culture, maybe a little different dress code,” Pizzi told analysts when asked about the match up.


Morgan Stanley's $13B E*Trade Deal

Five Takeaways for FAs

Workplace-focus strategy Morgan Stanley is doubling down on a workplace-focus strategy. With the E*Trade purchase, Morgan Stanley adds that company’s stock plan administration unit, Equity Edge Online, to its own similarly focused Shareworks unit, which the wirehouse renamed after acquiring Solium Capital in 2019. “We love our financial advisors. We have nearly 16,000. I think this is a fantastic way to augment what our financial advisors are doing for their clients and also provide referrals into them,” Morgan Stanley CEO James Gorman told analysts.

Capitalizing on millennials’ zeal for robo services Morgan Stanley intends to capitalize on millennials’ zeal for robo services, while not sacrificing its stature with its FAs’ high-net-worth clients. “Having access to this younger demographic and acknowledging that demand for digital solutions is critical to the growth of our business. And as these clients’ needs become more complex, we’ll continue to serve them through the current Morgan Stanley offerings,” Morgan Stanley CEO James Gorman told analysts.

The RIA channel not a prime motivator for the deal Morgan Stanley’s ambitions with this new deal lie largely outside the RIA channel, even though E*Trade recently penetrated that market. “It wasn’t a prime motivator of the transaction. We’ll play that out over time," Morgan Stanley CEO James Gorman told analysts. But E*Trade’s CEO Michael Pizzi stressed the potential of the RIA channel. With Morgan Stanley's acquisition, E*Trade will increase “the amount of capabilities we are going to be able to bring to drive that growth,” he said.

Expecting no disruptions Executives of both Morgan Stanley and E*Trade executives expect no disruptions for users of either companies' products and services. “There will be no disruption to the E*Trade clients. … There will be no disruption to the Morgan Stanley advisors’ clients at all. We will simply be adding services and referrals into that network,” Morgan Stanley CEO James Gorman told analysts.

Similar culture, but ‘maybe a little different dress code’ As far as corporate culture integration, E*Trade CEO Michael Pizzi took note of both companies' cultures. “I think we share a lot of elements of culture, maybe a little different dress code,” Pizzi told analysts.


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