New York (Reuters) – Morgan Stanley ( MS.N ) and Bank of America Corp ( BAC.N ) are expanding the services they offer, hoping to gain market share in a boring but trustworthy wealth management business for companies and employees.
FILE PHOTO: Sign Is Exposed at Morgan Stanley Building in New York, USA, July 16, 2018. REATERS / Lucas Jackson
The banks that run the two largest US wealth management companies focus on different parts for the benefits business, Reuters executives say. But both strategies create opportunities for businesses to market to younger and mid-sized customers.
Morgan Stanley is upgrading its $ 850 million acquisition of Solium Capital, which manages employee stock plans for about 3,400 companies and 2.7 million employees.
Morgan Stanley renamed it Shareworks and seeks to introduce deferred compensation management, health savings accounts and student loan refinancing. The company is also considering a partnership with a payroll company.
Meanwhile, Bank of America has focused on retirement services with significant growth in its 401 (k) s and health care accounts.
The bank now manages plans for around 30,000 companies covering 5 million people. It was ranked 7th in PlanSponsor.com's annual list of 401 (k) asset recorders last year, with three cutoffs higher than 2017.
The two banks typically look after older, wealthier families. By providing wealth services to companies, they hope to start relationships with young workers who may later develop into wealth management relationships.
The investments made by Morgan Stanley and the Bank of America in workplace benefits services reflect the shift of the global banking industry to more stable, chargeable businesses to offset the worldwide decline in trading post-crisis financial turmoil in 2007-2009.
However, business has become more competitive in recent years. Fidelity, Vanguard and TIAA are ranked among the top three employee benefits providers, while Charles Schwab Corp ( SCHW.N ) and E * Trade Financial Corp ( ETFC.O ) have significant business fund activities.
Companies plan to change financial institutions only once a decade, and retirement products are fairly standardized, leaving little impetus for change.
Combined with the pressure to reduce investor fees and the huge expense of doing a large-scale employee income transaction, it can be difficult for Morgan Stanley and Bank of America to succeed, analysts say.
"This is a very sensitive to the fees industry," says Anastasia Krimkovski, an associate director at retirement research firm Cerulli Associates. "An even bigger deal is managing your 401 (k) plans because you have this idea of being a good confidant."
However, executives at both banks told Reuters in separate interviews, that they see an opportunity to increase revenue and earn customers through these businesses.
Bank of America believes it can take on clients left by JPMorgan Chase & Co ( JPM.N ) and Wells Fargo & Co ( WFC.N ), which both have left the 401 (k) business in recent years.
And Morgan Stanley bought the most popular software platform for employee stock plans, making it difficult for rivals to compete.
Morgan Stanley has added 200 new corporate clients since the acquisition, and estimates that overall Shareworks platform employees have $ 1.5 trillion in other accounts.
Executives predict that over the next decade, they may turn hundreds of thousands of employees into clients of the firm's robotics advisor or its brokerage.
"This creates value for the employer, employee and creates a new source of leads for us," says Jed Finn, Chief Operating Officer of Morgan Stanley's Wealth Unit.
Analysts said the revenue generated by Shareworks would be minimal in the short term but could later create a serious business.
Bank of America's strategy of offering a full suite of employee income products, including 401 (k) s, equity compensation schemes and health savings accounts, to existing customers in other parts of the bank is also making money now .
Bank of America added nearly 3,000 corporate clients to its institutional retirement business in 2018, up about 50% from the previous year. So far this year, it has added another 2190 of them. This includes 401 (k) s, HSAs, employee benefit plans and defined benefit plans.
"A huge amount of profits come from existing customers," says Alastair Bortwick, Chief Commercial Officer of Bank of America.
Still, only about 10% of Bank of America's corporate customers use its retirement services, giving the bank an opportunity, Borthwick said. The institutional retirement business is hiring more retirement professionals to help rank these products.
"Recruiting a company to include a 401 (k) or administering stock plans takes time," says Glenn Shore, an analyst at Evercore ISI. "The good news is they already have a relationship with their target market customer and now it's up to them to convince them." : Thomson Reuters Trust Principles.