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Morgan Stanley’s Fee-Based Asset Flows Slow

October 18, 2017

Morgan Stanley wealth management unit posted solid growth in the third quarter, but asset flows into fee-based accounts have slowed down to their lowest in a year, following the proposed delay of the Department of Labor’s fiduciary rule, InvestmentNews writes.

The wirehouse had $15.8 billion move into fee-based accounts in the the third quarter, which is a 21% drop from the $19.9 billion inflows in the previous quarter and the lowest since the third quarter of 2016, according to the publication. This comes with growing probability of major changes to the DOL’s fiduciary rule, InvestmentNews writes.

The rule, which purports to require retirement account advisors to put clients’ interests first, went into partial effect in June. But under pressure from president Donald Trump, the DOL has pushed back the final implementation date of the rule — originally scheduled for January — by 18 months. The Labor Department has also already watered down some of provisions in the rule. In particular, the rule’s best interest contact exemption, which would require brokers to first sign a best-interest contract with clients to sell some commission-based products, was expected to drive the transition from commission-based to fee-based accounts.

Nonetheless, Morgan Stanley’s fee-based assets have grown $54.5 billion year to date, InvestmentNews writes. Fee-based assets have reached a record of $1 trillion, according to a press release from the firm. And the fee-based approach has become popular not just for retirement accounts, which would have been affected by the DOL’s rule. Jonathan Pruzan, Morgan Stanley’s chief financial officer, tells the Wall Street Journal a substantial number of transitions from commission-based to fee-based accounts in the latest quarter came from non-retirement accounts, which he attributes to the appeal of the higher level of services in fee-based options.

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Pre-tax income from continuing operations in Morgan Stanley’s wealth management unit reached $1.1 billion in the third quarter, compared to $901 million in the prior year, according to the firm. Revenue from asset management fees grew to $2.4 billion, compared to $2.1 billion the year prior, while transaction revenue dropped from $791 million a year ago to $739 million in the third quarter of 2017, according to the press release.

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here.
  • To read the Wall Street Journal article cited in this story, click here.