NEW YORK (Reuters) – Morgan Stanley (MS.N) and Bank of America Corp (BAC.N) are increasing the employee-benefits companies they provide, hoping to realize market share in the dull-but-reliable enterprise of managing wealth for corporations and workers.
FILE PHOTO: An indication is displayed on the Morgan Stanley constructing in New York U.S., July 16, 2018. REUTERS/Lucas Jackson
The banks, which function the 2 greatest U.S. wealth management corporations, are targeted on completely different elements of the advantages enterprise, executives instructed Reuters. But each methods create alternatives for the corporations to market to youthful and middle-class shoppers.
Morgan Stanley is constructing on its $850 million buy of Solium Capital, which manages worker inventory plans for some 3,400 corporations and a couple of.7 million workers.
Morgan Stanley has renamed it Shareworks and is trying to roll out deferred compensation management, well being financial savings accounts and scholar mortgage refinancing. The agency can be contemplating partnering with a payroll firm.
Meanwhile, Bank of America has targeted on retirement companies, with vital growth in its 401(ok)s and well being service accounts companies.
The financial institution now manages plans for about 30,000 corporations protecting 5 million folks. It ranked No. 7 on PlanSponsor.com’s annual checklist of 401(ok) record-keepers by property final yr, three notches greater than in 2017.
The two banks sometimes cater to older, rich households. By offering wealth companies to corporations, they hope to start out relationships with younger employees that might become one-on-one wealth management relationships later.
The investments Morgan Stanley and Bank of America are making in office advantages companies replicate the worldwide banking trade’s shift towards steadier, fee-driven companies to offset a secular decline in buying and selling income for the reason that 2007-2009 monetary disaster.
However, the enterprise has grow to be extra aggressive in current years. Fidelity, Vanguard and TIAA are constantly ranked as the highest three employee-benefits suppliers, and Charles Schwab Corp (SCHW.N) and E*Trade Financial Corp (ETFC.O) have substantial inventory plan companies.
Companies solely take into account altering monetary establishments about as soon as a decade, and retirement merchandise are pretty standardized, leaving little incentive to modify.
Combined with a push to cut back investor charges and the hefty expense of working an employee-benefits operation at scale, it might be laborious for Morgan Stanley and Bank of America to succeed, analysts mentioned.
“This is a very fee-sensitive industry,” mentioned Anastasia Krymkowski, an affiliate director at analysis agency Cerulli Associates specializing in retirement. “It’s an even bigger deal in 401(k) plan management because you have this idea of being a good fiduciary.”
OPPORTUNITIES FOR GROWTH
Nonetheless, executives on the two banks instructed Reuters in separate interviews that they see alternative to develop revenues and acquire shoppers by means of these companies.
And Morgan Stanley purchased the most well-liked software program platform for worker inventory plans, making it tough for rivals to compete.
Morgan Stanley has added 200 new company shoppers for the reason that acquisition and estimates that, general, workers on Shareworks’ platform have $1.5 trillion in different accounts.
Executives predict that, over the following decade, they will flip a whole bunch of hundreds of workers into prospects of the agency’s robo-adviser or its full-service brokerage.
“It creates value for the employer, the employee and creates a new source of potential clients for us,” mentioned Jed Finn, chief working officer of Morgan Stanley’s wealth unit.
Analysts mentioned revenues earned from Shareworks shall be minimal in the near-term however later might create substantial enterprise.
Bank of America’s technique to market a full suite of worker profit merchandise, together with 401(ok)s, fairness compensation plans and well being financial savings accounts, to current shoppers in different elements of the financial institution additionally makes it cash now.
Bank of America added almost 3,000 company shoppers to its institutional retirement enterprise in 2018, up about 50% from the prior yr. So far this yr, it has added one other 2,190 of them. That consists of 401(ok)s, HSAs, worker inventory and outlined profit plans.
“The vast amount of wins come from existing clients,” mentioned Alastair Borthwick, Bank of America’s international head of industrial banking.
Still, solely about 10% of Bank of America’s company shoppers use its retirement companies, presenting the financial institution with a possibility, Borthwick mentioned. The institutional retirement enterprise is hiring extra retirement specialists to assist pitch these merchandise.
“Getting a company to turn on a 401(k) or a stock plan administration takes time,” mentioned Glenn Schorr, analyst at Evercore ISI. “The good news is that they already have relationships with their target market customer and now it is up to them to convince them.”
Reporting by Elizabeth Dilts and Imani Moise in New YorkEnhancing by Lauren Tara LaCapra and Cynthia Osterman