Morgan Stanley has set a pre-tax profit margin goal of at least 30% for its wealth management business.

Buoyed by net new assets of $438 billion in 2021 and interest rates, Morgan Stanley has seen robust growth in its wealth management margins. The segment delivered a 2021 pre-tax margin of 25.5%, or 26.9% excluding integration expenses related to the acquisitions of E*Trade and Eaton Vance.

The new target is higher than the wealth management pre-tax margin goals of 26% to 30% that Morgan Stanley had previously set for 2021 and 2022.

“We've gone from five percent to 10%, to 15% to 20% to 25%, 27%, 28% margins with growth — that's a phenomenal story,” Morgan Stanley chief executive officer James Gorman said Wednesday during an earnings call. “If we can do 30%, which we will do because of the way rates are going, it gets even better.”

The CEO said “there’s no great magic” to the 30%-plus figure. “It's just the math of how we think the business plays out the next couple of years,” he added. “I don't know what the plus is going to be — it might be 0.1 or it might be five.”

Morgan Stanley’s wealth management business had $4.9 trillion in total client assets at the end of 2021, a 23% increase from $4 trillion at the end of the prior year, and a seven percent increase from the end of September.

Net revenue from Morgan Stanley Wealth Management was $6.3 billion during the last three months of 2021, a 10% rise from $5.7 billion a year ago.

FA Retention

Meanwhile, Gorman cited financial advisor retention as one of the key factors underpinning the wirehouse’s fourth-quarter earnings growth.

“We’re just not losing many people, that’s the reality,” Gorman said. “Relative to previous years, we’ve been significant net gainers, and that’s not because we’re doing stupid recruiting deals, that is because we’re not losing a lot of people.”

Gorman said Morgan Stanley is doing carefully targeted recruiting. “There are talented people in the market. They are not coming from one particular firm or another,” he said. “We don’t focus on firms, we focus on individuals, and that has been doing well.”

The CEO who oversaw the acquisitions of E*Trade and Eaton Vance is one of the highest-profile figures on Wall Street. The Australia-born executive has been at the helm of Morgan Stanley since 2010.

During Wednesday’s earnings call, Gorman was asked by an analyst how long he plans to remain in the CEO role.

“I am not leaving now, and I am not going to be here in five years, and it’s up to the board. We’re developing successors,” he said. “I’ll be here a few years, and I want to see these integrations done. I want to see us firmly on this path, and I want to hand it over to somebody else who can take us to the next decade.”

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