While other global financial institutions have been revamping their private banking arms to adapt to emerging trends among high-net-worth clients, Morgan Stanley had so far appeared to have to given up altogether. Gorman, who joined from Merrill Lynch where he was president of the US and international private client business, is the first to admit that the business deserves a much-needed overhaul.
Speaking at the UBS Global Financial Services Conference in May, Gorman was his usual candid self. “Performance has been poor since 2001,” he said. “The business has underperformed the industry group and its potential. Margins have averaged just 6%, and pre-tax revenues dropped $96 million from 2003 to 2005. While competitors were extracting value at the bottom of the cycle, [Morgan Stanley] continued to lose pace.” And although assets under management did increase, this was entirely a result of market appreciation. Over the past 12 months, net new inflows into the business have been a negative $6 billion. “Given all that has happened I’m surprised it wasn’t negative $60 billion,” Gorman said.
What exactly did happen, he explains, is lack of investment, lack of controls, lack of segmentation, lack of product definition, high turnover in financial advisers and a damaged reputation.
