New Retirement Rules Don't Pose Hurdle for Morgan Stanley's Brokerage

By Michael WursthornFeaturesDow Jones Newswires

Morgan Stanley isn't sweating retirement rules set to take effect in June.

The New York bank played down the effects of the U.S. Labor Department's fiduciary rule, which requires brokers to put the interests of retirement savers ahead of their own, as it was delayed earlier this month after the Trump administration ordered an economic-impact review that may result in it being revised or rescinded.

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The bank said that while the rule has had a chilling effect on recruiting, broker attrition has been low and the brokerage has been better able to retain and find talent.

"It's all been positive from that perspective," Jonathan Pruzan, Morgan Stanley's chief financial officer, said Wednesday while discussing first-quarter results with analysts. "We're prepared if it does go into effect."

Wall Street's biggest banks have either been mum on the fiduciary rule during this earnings season or, such as Morgan Stanley, said it hasn't had a detrimental impact on their businesses.

Then there is Merrill Lynch, which showed it is already capitalizing on changes it made to comply with the rule, specifically moving most of its retirement-saving clients who pay commissions to accounts that charge a fee based on a percentage of the assets. The Bank of America Corp. brokerage unit says fee-based accounts are better suited to minimize risks, but they also shield the firm from the rule's more onerous requirements.

Mr. Pruzan reiterated Wednesday that Morgan Stanley will continue to offer commissions as a payment option to retirement savers. Executives at the firm, however, have said such accounts would likely carry some sales restrictions, such as around annuities, because of the rule's restrictions on compensation incentives.

Still, Morgan Stanley, like Merrill and others, continue to collect billions of dollars in new fee-based assets, boosting the wealth-management unit's revenue.

In the first quarter, Morgan Stanley's wealth unit reported $4.06 billion in revenue, up 11% from the year-earlier period, on higher asset-based fees and commissions. Net income for the unit rose 31% from last year, to $647 million. The unit's pretax profit margin, a key performance metric, rose 3 percentage points from last year, to 24%.

Morgan Stanley collected $18.8 billion in new fee-based assets through the first three months of the year, pushing its stockpile to a record $927 billion. Of the unit's $2.2 trillion in client assets, about 42% reside in fee-based accounts, up from 40% a year-earlier.

"We've had good momentum," Mr. Pruzan told analysts, adding that the shift toward collecting more fees away from commissions continues.

More broadly, Morgan Stanley beat Wall Street estimates after reporting a profit of $1.93 billion on revenue of $9.75 billion.

Write to Michael Wursthorn at

(END) Dow Jones Newswires

April 19, 2017 12:10 ET (16:10 GMT)