What’s Crushing Wealth Management Results at the Wirehouses?

After years of strong growth, including through last year’s tumultuous market, wealth management divisions at some of the largest financial institutions have finally come up short of expectations. 

As firms reported earnings, results from the wealth businesses at Morgan Stanley, Bank of America and Wells Fargo all underperformed relative to 2022. Executives at the firms blame high interest rates encouraging retail investors to keep more of their assets in cash and higher-yielding cash alternatives. 

Morgan Stanley brought in $35.7 billion in net new assets during the third quarter of 2023, 45% less than it brought in during the year-ago period and 60% less than the previous quarter. Net revenue dipped 4% from the previous quarter and total assets under management fell 2%.

While revenue and client assets are up 5% and 16% year over year, respectively, it’s a far cry from October 2022, when Morgan Stanley CEO James Gorman celebrated the wealth management business continuing to perform well despite market indexes dropping more than 20%.

On this year’s call to discuss third-quarter earnings, Gorman noted that results are “obviously below recent quarters.” 

“As anticipated, the market environment in aggregate remained mixed continuing a pattern we’ve seen over the past several quarters,” Morgan Stanley’s CEO said. “The concerns around a tight employment market, high commodity prices, inflationary pressures that may impact Fed policy provide additional challenges later in the quarter.”

Rivals’ Reports

The story was similar at Bank of America, which reported earnings on Tuesday. The bank’s global wealth and investment management business, which includes Merrill Lynch Wealth Management, had net income of $1.0 billion in the third quarter, 13% less than same period in 2022. Revenue fell 2% from a year ago to $5.3 billion.

Meanwhile, Wells Fargo reported that third-quarter revenue from its wealth management business increased 1% from a year ago, while income fell 17%. Total assets fell 3% from the second quarter to $1.9 trillion but rose 11% from the previous year.

On the company’s earnings call, CEO Charlie Scharf noted that the Wells Fargo Advisors business has “treaded water for a long period of time,” while CFO Mike Santomassimo said outflows from the wealth business contributed to a decline of 5% in average deposits from a year ago. 

“While average deposits were down compared to both the second quarter and a year ago, the pace of the decline slowed in the third quarter,” Santomassimo said. 

The Main Problem

Executives across the three firms blame high interest rates set by the Federal Reserve, which is encouraging clients to keep more of their wealth in cash.