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Morgan Stanley Has Some Wealth To Manage
If you weren't apprised, Morgan Stanley is a business that "facilitates capital for clients to reach
Some years ago (for me it seems everything was “some years ago”) I was engaged to evaluate a privately-held wealth management firm the client wished to acquire for his bank. As I dug into the mechanics and economics of this business I made one major discovery: this business is egregiously profitable. Margins were in the range of 50%. How can you miss with that kind of profit? I guess it is a “stabilizing factor” for Morgan, and others of its ilk. I made one other discovery. Success in this business is totally dependent on the presence of quality people. As I looked over this target it was clear that after it was sold all the principals in this firm would take their cut and leave, making the firm into a Rolodex. I told my client the business was very profitable and valuable if nothing changed, but since I expected major change I told him to pass. He paid me but didn’t take my advice and got in a bidding war which led to a price at least double the firm’s value. Fortunately, my client lost the war. Two years later the firm had essentially dissolved and become worthless. I have always believed that when it comes to business, there are some customers you would rather your competitors took from you.
Mr. Lucky, right on – a money making machine. Get the asset mix right, 60/40 or 80/20 or whatever to fit the client profile and hammer it for 75 BPS of AUM. Then it becomes client relations and service which means quarterly reviews. Assume 5 or 10 BPS for over head; then the broker splits are another 15 to 25 BPS and you carry 30 to 45 BPS into your pocket. Broker/advisers are highly paid so no labor issues. Even if you juice broker payouts, at a minimum you make 20 BPS. It just becomes a game of AUM. Small AUM accounts you give to the bots to service.