MS Morgan Stanley

By Anna Prior 

Morgan Stanley's wealth-management unit muted the effects of volatile markets on revenue during the second quarter, as the bank continues to position the business for profitability and growth as investment advice increasingly goes digital.

Revenue for the New York bank's wealth-management arm in the latest quarter slipped $64 million, or about 2%, from the year-earlier period to $3.81 billion. The unit saw lower commissions and asset-management fees, which fell 14% to $423 million and 4% to $2.08 billion, respectively.

However, net interest income increased by $92 million, or 12%, to $829 million as loans to wealth-management clients grew 19% to a record $69 billion.

"Even though we haven't seen a pickup in retail engagement, [the wealth-management] business continues to provide stability against an uncertain macro backdrop," Chief Financial Officer Jonathan Pruzan said during a conference call Wednesday to discuss earnings.

Profit in Morgan Stanley's wealth arm fell roughly 8% to $516 million from last year, but lower expenses helped pretax profit margin improve from 21% in the first quarter to 23% in the latest quarter. Chief Executive James Gorman previously said the bank has targeted pretax margin for the unit of 23% to 25% for 2017. Overall, Morgan Stanley reported a 12% decline in second-quarter profit but still topped analysts' subdued expectations.

Among other items Morgan Stanley reported along with second-quarter earnings, the bank said its brokerage arm kept its work force basically flat at 15,909.

"Attrition is clearly running low and it's been like that for a while," Mr. Pruzan said on the call. Mr. Gorman added that the Department of Labor's new retirement-advice rule, which toughens standards for financial advisers and brokers providing advice on retirement accounts, hasn't affected recruitment.

Annualized revenue per broker fell about 2% from last year to $959,000.

Morgan Stanley's brokerage had $12 billion in inflows to fee-based accounts. That helped increase fee-based assets by about $22 billion from the first quarter to $820 billion, which represents about 40% of Morgan Stanley's $2 trillion in client assets.

Meanwhile, the unit is exploring the intersection of technology and investment advice, as executives emphasized the firm's investment in digital initiatives during a discussion of the bank's earnings call.

"Digital is far more than just robo," Mr. Pruzan said on the call. "We think that the right business model and the winning hand here is a combination of advice and [financial advisers] with technology."

The unit's digital strategy, he added, has focused on three main areas including data and analytics, efficiencies around automation, and the various platforms on which clients interact with advisers and the firm.

Traditional wealth-management and brokerage firms have been wrestling with how best to embrace the fast-growing digital investment-advice segment, typically referred to as "robo advisers."

Wells Fargo & Co.'s brokerage and retirement arm has announced it may soon offer its own robo adviser, while UBS Group AG's U.S. brokerage said in May that it is teaming up with a robo adviser to develop new tools for its brokers.

Morgan Stanley executives didn't discuss any specific robo offerings on Wednesday, but noted the bank has been "investing heavily in this area."

"We believe secular trends are for advice with technology, and that's the business that we are building," Mr. Pruzan said.

Write to Anna Prior at anna.prior@wsj.com

(END) Dow Jones Newswires

July 20, 2016 12:49 ET (16:49 GMT)

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