Thursday, January 18, 2018
The Wall Street Journal has an article on Morgan Stanley's rising profits and stock price. Much of the profits come from servicing retail investor accounts. It's an increasingly profitable business line:
Morgan Stanley’s X-Factor, though, is increasingly its giant retail brokerage, which oversees $2.4 trillion for some 3.5 million households. That unit’s revenue rose 10%, while lower expenses lifted its profit margin—once in the high single digits—1 percentage point to 26%. Mr. Gorman set a new upper goal of 28%.
Many of these profits come from gathering assets and then charging a management fee. This allows Morgan Stanley to profit even when clients do not actively trade their accounts. The Journal described it this way:
Morgan Stanley’s retail brokerage gets a growing portion of its revenue from steady fees that are assessed as a percentage of client portfolios, rather than commissions on trades. As the stock market marches higher, Morgan Stanley is guaranteed profits on those accounts whether clients trade or not.