Morgan Stanley’s $13 billion deal to acquire E*TRADE represents a major step in the wealth management firm’s movement downstream. The news—which comes on the heels of Charles Schwab’s November 2019 announcement of its TD Ameritrade acquisition—has been hailed as the biggest takeover by a U.S. bank since the 2008 financial crisis. These kinds of transformative deals could result in a core set of industry players vying to provide comprehensive financial management services. Below, we examine what this means for the industry and for Morgan Stanley, and the potential digital and strategic manifestations of this new environment.

Industry titans look to serve the full spectrum of consumers’ digital financial needs

Morgan Stanley’s acquisition news represents the continued blurring of lines between full-service and discount brokerage business models as well as between brokerage firms and banks. In recent years, Morgan Stanley has acquired or introduced new services in an attempt to cast a wider demographic net. With its acquisition of E*TRADE, the firm will fill its missing gaps in the retail investing marketplace by opening its doors to the mass market. The timeline below highlights many of these downstream movements that have expanded Morgan Stanley’s suite of retail services.

Morgan Stanley retail investing timeline

 

As a core set of industry giants emerges, their focus will be on expanding existing wallet share. Corporate Insight (CI) believes this could manifest itself in several ways:

  • First, digital platform integration will be paramount for those attempting to cross-sell. We expect to see a continued focus on creating integrated dashboard experiences that establish a centralized location for money management needs (across retail, workplace, lending, credit, etc.).
  • Loyalty programs are another avenue that can create brand trust and encourage multi-product relationships.
  • Finally, creating thoughtful incentive programs for advisors and salespeople can help drive cross-selling initiatives.

Stock plan services and their digital experiences step into the spotlight

A business often overlooked in the media—stock plan services—is a key factor in Morgan’s acquisition of E*TRADE. Morgan Stanley’s stock plan business originally focused on executive leadership at Fortune 500 companies until its 2019 acquisition of Solium Capital. With the Solium purchase, Morgan Stanley gained 3,000 corporate clients with one million employees, including many eye-catching startups like Stripe and Shopify. These stock plan participants are a new and appealing target for cross-selling Morgan Stanley’s wealth management businesses. Bringing E*TRADE’s stock plan clients on board will further strengthen Morgan’s position in this market.

In 2018, CI published an in-depth study of stock plan services. The report—which will be refreshed in 2020—examines the digital experience for nine firms: Bank of America Merrill Lynch, Carta (eShares), Charles Schwab, Computershare, E*TRADE, Equate Plus, Fidelity, Morgan Stanley and Solium Shareworks. Among the findings from that study, E*TRADE stood out for its intuitive navigation, broad and engaging educational resources, interactive tools and usable mobile platform. Although Morgan Stanley may have its hands full reconciling multiple digital experiences, the E*TRADE platform will provide the firm with a strong set of features to choose from.

Competition may heat up in the RIA space

In addition to the DIY investing marketplace, Morgan Stanley’s acquisition of E*TRADE gives it an entry point into the RIA custodian space. E*TRADE for Advisors has a relatively small slice of the RIA custody market, but with Morgan Stanley’s backing, this could change. The combined Schwab-TD Ameritrade is believed to hold 65%-70% of the RIA custody market. There are concerns that Schwab will not service the lower end of the RIA market to the degree TD Ameritrade has, which suggests a possible opening for Morgan Stanley. This would be a new and potentially challenging territory for the firm. If E*TRADE Advisors is kept as a custody and referral network, it may be in direct competition with Morgan Stanley’s traditional full-service brokerage business.

What’s left for Morgan to consider?

With the completion of the E*TRADE acquisition, Morgan Stanley’s services will run the gamut from mass market retail investing to high-net-worth and institutional wealth management. Perhaps the one key missing piece that remains for the firm is within the defined contribution market. This is a space where other mega players like Bank of America, Charles Schwab, Fidelity and Vanguard all have a presence, some much stronger than others. There are significant challenges to consider when becoming a recordkeeper, including relatively low margins. That said, Morgan Stanley has the size and scale to enter this market next, most likely by acquisition.

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