Morgan Stanley (MS) Earnings Call Transcript & Summary

Okay. Thanks, everybody. Appreciate you coming here for our Morgan Stanley Financials Conference. I do have a quick disclaimer read. This discussion and the one with James Gorman later today may include forward-looking statements, which reflect Morgan Stanley management's current estimates and subject -- and is subject to risks and uncertainties that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements. This discussion, which is copyrighted by Morgan Stanley and may not be duplicated or reproduced without their consent. It is not an offer to buy any security. All right. Thank you, everybody, for joining us. I'm thrilled to have with us today, Jed Finn. Jed is COO of Wealth Management and Head of Institutional Solutions at Morgan Stanley. Jed, thanks so much for joining us. Jed will be going through a presentation followed by some Q&A. So looking forward to hearing Jed's thoughts.

Good morning, everybody. Thank you, Betsy, for the introduction and the disclaimer. We appreciate you all being here, and I appreciate the opportunity to share some more color around how we're executing against our strategy in this part of the wealth management business, which is, as you can see from the slide, how we're deepening client relationships through some of the newer channels we now have access to specifically on the workplace and the self-directed platform of E*TRADE. And so I will cover 3 topics in addition to another disclaimer. Number one, a quick recap of that strategy; number two, I'll touch on the magnitude of the opportunity in front of us; and then three, I want to share some of the learnings that we've gained over the last 18 or so months that we've officially been at this since the close of the E*TRADE transaction. And I just want to underscore upfront that those learnings are important for 2 reasons. Number one, the fact that we can quantify at a detailed level, what's working and not working as we seek to migrate these clients to advice relationships demonstrates the power of the integrated data platform that we have built, and it is live now, and it underpins all 3 of our channels. And it at least gives us confidence that over time, we're going to be able to turn those dials to drive more and deeper relationships. And then number two, as you'll see when we go through the material, the learnings that we have provide a very clear road map as to where we need to invest. So to those of you who have asked us where we're focused in the coming weeks and months and years, it should be quite apparent. So with that, let's dive in. I'm going to try not to walk in front of you.

That's okay.

I want to start by just contextualizing this entire discussion within the journey that we've been on in Wealth Management over the last decade or so. And conceptually, the way we think about where we are today is we're just entering our fourth phase of growth. Phase 1 was about building the scale that's necessary to compete effectively in this industry. and it required pulling off the largest integration in wealth management history. It took several years, it took a lot of effort. And those of us who were here and I see a number of my colleagues in the room, we're also wearing the scars from that effort, but it was worth it. Phase 2 then was executing against our belief that the winners in the space would be those firms that could combine best-in-class advice with best-in-class technology and do so at scale. While a robo only solution has its place, we never thought it was going to take meaningful share because at its core, financial advice within Wealth Management is a deeply personal and an emotional piece of advice. And so we never thought it was going to ever be automated away. That said, at the time, back in 2016, it was very clear to us that technology was going to become an increasingly important enabler for how our advisers deliver that advice. And so we invested behind that thesis. And a number of you who are in the room today were also here in 2018, where we ran our Expo 1.0. It was our technology expo, and it was designed to demonstrate some of the unique capabilities that we had built, things like Aladdin for Wealth Management and Next Best Action and GPS, which is our goals planning solution that seamlessly integrates the planning piece with the portfolio construction piece so clients and advisers have no friction in terms of implementing those plans. All of those tools were unique then 4 years later, they're still unique and they've been a big driver of our outsized growth over the last couple of years. Phase 3 then was about expanding our acquisition and our service channels beyond the traditional financial adviser to include the workplace and digital direct. And this was really important for us because it gave us the ability to meet clients where they are in their wealth journey. Regardless of where you fall in the universe of advice consumption preferences, whether you're a soft directed investor just starting out or you're a sophisticated family office who wants blended retail and institutional coverage, we have a solution, I would argue, a best-in-class solution that can meet your needs. And so now on Phase 4, which is taking all the capabilities that we built in Phase 2 and combining with all of the channels that we got access to in Phase 3, and now delivering an integrated client experience where we seek to deepen relationships across every single touch point, that is where we are focused on deepening those relationships. A number of you have heard us talk about Project Genome, which is our AI-based client engagement engine that's designed to provide the right offer to the right client at the right time, again, to help achieve their wealth management goals, but also to deepen relationships. Earlier this year, we introduced a new retention metric that allows us to track how effective we are at retaining shares in cash post the vesting event. We'll focus there, not because of the incremental economics that are associated with those balances, although there are some, but the longer the money stays in the building, the easier it is for us to deepen client relationships. And if you take a step back beyond the work that we're doing now to convert the E*TRADE back office onto the Morgan Stanley back office, which we need to do for big scale and efficiency benefits, any other investment that we're making in the space is, again, to deepen client relationships. But it's probably difficult for those of you who are not in the weeds every day, which is hopefully all of you to understand how all the different pieces come together. And so we're taking a page out of our 2018 playbook. We're running Tech Expo 2.0. We're calling it the Connected Client Journey, and it's a multimedia experience that's designed to allow all of you to follow different client personas as they interact with the Morgan Stanley platform to achieve their wealth management objectives. It's downstairs right on the lobby level. Each journey is 8 minutes, so it's not a massive time commitment. And we would strongly urge you to check it out either during a break or before or after because it brings to life all the things that we're doing and the key takeaway, which I'll just tell you upfront is it's designed to show the power and the distinctiveness of bringing all of these capabilities together under 1 roof. So let's dive into Phase 4 and our acquisition funnel. Many of you heard us talk about this in the past, and some of you have heard it many times, but we keep coming back to this because it is the simplest articulation of the strategy that we are pursuing, which is we're building a massive asset acquisition funnel that starts either in the workplace or with the self-directed investor but is ultimately designed to end up in a full-service advice relationship. And we think of it as having 3 steps. Number one, we want to maximize the number of potential clients that we put in the top of the funnel, and we do that through either winning new B2B mandates or through attracting self-directed investors to the E*TRADE platform. That's why we've leaned into the E*TRADE marketing effort you saw at the Super Bowl. We even brought the baby back. Step number 2 is then building trust and credibility with those potential clients, and we do that by giving them access to Morgan Stanley resources and training and education content and even tools and analytics, all delivered through our financial wellness platform. The goal in this step, and this is important because we're going to keep coming back to it, is to make them feel like they are advice clients even before we get to step 3, which is the actual migration into an advice relationship. And the way we do that is by connecting the right client with the right adviser at the right time and positioned in the right way. And that's a very important point, which I'll touch on shortly. But we also recognize not every client is ready for a full-service relationship right now, and that's okay. Because of the capabilities we've acquired, we can happily set them up with a self-directed solutions and then grow with them over time. The other key point of strategic differentiation that's important to understand is the uniqueness of our B2B strategy here, which is the first step in that funnel, if you recall. And the punch line is we are the only firm who would argue that can deliver cradle-to-grave corporate services where we grow with a company at every phase of their own life cycle. When it's just a couple of folks in the garage, we can put them on Shareworks private, which is essentially a self-service cap table management solution. When that private company becomes more complicated and their needs get more sophisticated, we can put them on the Shareworks private platform, which is our main private markets capability. And that allows them to do things like track different share classes, track different voting rights, even facilitate liquidity transactions, things like tender offers, controlled trading platforms or programs and auctions. And what we've already done, and this is live is we've connected the tender process to the E*TRADE account. So when a company goes through a tender event, the employees and early investors tender their shares, that cash drops into E*TRADE account as net new assets. But again, back to the theme, more importantly, it allows us to build a wealth management relationship with them before the big liquidity event of going public. When it's time to go public, we're obviously associated with a world-class investment bank that can easily manage that transition. On the workplace side, we can seamlessly switch from private cap table manager to public equity plan admin, and then we can provide a number of services around that event. DSP, which is the directed share program, we have friends and family programs that a number of these offerings have. We can do the 10b5-1 for executives. We can advise on the 401(k) plan and the investment options. We can manage the corporate cash. We can deliver financial wellness and we can manage the individual wealth of the employees up to and through retirement. And the reason why we believe this is unique is several fold. Number one, because we're delivering every single sleeve, we can be very price competitive as we're competing for any individual piece of business. Number two, from a corporate buyer perspective, the process is really easy because as they grow, they simply flip on new services. And remember, a lot of what we're talking about here from the perspective of the company is not a core part of their strategy, meaning Uber is not a better mobility company because Shareworks is administering the equity plan, it just has to work. And if firms like that can partner with the firm, with the brand and scale and credibility and resources of Morgan Stanley, then that buying experience becomes very comfortable for the CHRO or the head of benefits, or the CFO or whomever is actually doing the purchasing. And then third, the last reason why we think this is unique, and this is probably the most important is the fact that from a client perspective, everything is integrated because it's all within the Morgan Stanley ecosystem. So if you are an advice client and you have a self-directed account, and you work at a company where Shareworks or Equity Edge is administering the equity plan and you have assets held away, we can ingest all of that data in real time on the Morgan Stanley portal. And then as a client, you and your adviser can interact using the tools that we've been talking about. It just gives you a very different picture of your finances and your ability to scenario plan to meet your wealth management objectives. So let's switch gears now and talk a little bit about the magnitude of the opportunity. And the key point here is that we have dramatically scaled our footprint over the last several years. For those of you who've been following us for some time, you recall in just 2019, we talked about the fact that we had $2.5 trillion in assets here and $2.5 trillion in assets away. And what we used to talk about was we could double the size of our asset base without adding a single new client relationship. And the focus there was on consolidating, right? We wanted to be the quarterback of the relationship. We'll fast forward now to 2022. And as a result of the capabilities that we've built and the capabilities that we've bought and the consolidation that we've effectively delivered, we're now sitting at just shy of $5 trillion in assets. But that's now held by 16 million participants who are holding $10 trillion in assets away. So $5 trillion here, $10 trillion away, despite the fact that we've enjoyed this growth, we can now triple the size of the firm without adding a single client relationship. And the second point on this slide, which I'm sure you picked up just by looking at it, is the fact that the number of clients is growing faster than the total assets held away, which implies the marginal clients' assets are lower than the average of our client on the platform. That is absolutely by design. A core part of the strategy is to build relationships with clients who are earlier in their wealth accumulation journey and then deepen those relationships over time. So what we're talking about with this pool is not just a source of immediate flows, but a pipeline in the future that's going to continue to grow as we grow. And what we're talking about in all of the gaudy numbers on the slide just represent our existing client footprint. If you look at the opportunity in the market more broadly, we have significantly more room to run. I'll let you digest this page for a second. This shows the market share that we have within a number of the workplace businesses in which we compete. And while we have a leadership position on the stock plan side, with about 50% of the S&P on a market cap-weighted basis, we are just getting started in our share capture journey in some of the other businesses. On the retirement side, where we advise companies that could range from small businesses all the way to large corporations around 401(k) plan selection and investment option lineup, we've essentially rebuilt that platform over the last couple of years to make it easier to engage with the participants and to provide education to those participants. We've also established some co-branded relationships with -- which I'm sure some of you read about, which ensures that when that employee goes to the record-keeping site, what they see is the Morgan Stanley brand. Again, back to our strategy of making clients feel like their advice clients even before we get to that advice discussion. On the other institutional consulting businesses, where we provide advice to Taft-Hartley plans or foundations and endowments. We've invested in home office professionals who can deliver best-in-class intellectual capital. We've invested in tools and analytics. We've added our research capacity. All to help those consultants deliver better advice to their clients. On the family office front, we've taken our fund admin platform from our institutional partners. It sits within prime brokerage in the equity admin or in the equity division, and we've adapted it for the family office. And as a result of that, we've taken the family office business from a standing start 2 years ago -- 2.5 years ago, to over $25 billion in assets today. But what's more exciting to us about that is the pipeline that we have is a multiple of that number, held by families who we've already had that introductory conversation. There is big demand to take advantage of that adapted fund services platform and sit on a single contract on a single platform, but yet coverage from both institutional expertise and retail expertise, which is uniquely something that Morgan Stanley can deliver. And then finally, on the non-qual deferred comp side, where essentially nowhere right now, but it's up on the slide because it's an area that we are very interested in. And that has some benefits for us for 2 reasons. Number one, our clients are asking for it. A lot of companies want to have a non-qual plan that sits alongside an equity admin plan. So there are embedded revenue synergies. But two, the leakage to wealth management is incredibly high. The participants in those plans are senior executives who tend to have a lot of money and the decision about how much to defer and how long to defer it for practically requires a detailed financial planning conversation. So stepping back from all of this, the opportunity within our existing footprint is significant. Again, we can triple the size of our asset base without adding a single new client relationship. And the opportunity in the broader industry is significant, as you can see by all of the room that we have to run from a market share perspective. And that's why we're so enthusiastic about the road ahead. And that's why we say back to that first slide, we are just starting our fourth phase of growth. We're in the very earliest stages. So now let's talk a little bit more tactically about how things have gone and what we've learned. And obviously, it's early days. So the base that we're starting from isn't massive. And yet, we have enjoyed significant growth. And you can see that from the size of the multiples on that page, between 2019 and 2021 at each step in the funnel. And again, that's what's represented there. On the B2B side, that first step in the funnel, we've more than doubled the number of new client wins from 2019, and that's a pro forma number, so that includes the performance of E*TRADE. Having 2 leading equity plans under one roof means we're essentially a required invite to the RFP process. And then when you add on top of that, our wellness platform and the broader resources of wealth management, and the pre-existing relationships on the institutional side, what you have in our ecosystem is a growth accelerant. But what's more important to us than the number of plans, obviously, is the number of participants. And in 2021 alone, we added 700,000 new participants to our equity plans. Just to put that number in perspective, 2 slides ago, we talked about the 2.5 million total client relationships we had in 2019. That's after 40 years of growth from this firm and its predecessor firms. We added almost 30% of that in a single year. We added 200,000 new participants in the first quarter of 2022. We're talking about a very different ZIP code in terms of our growth trajectory. And the second step of the funnel in terms of building trust and credibility, we've seen a big uptake in financial wellness, both in terms of number of mandates and in terms of number of participants. And right now, what we're focused on is experimenting with a range of different tactics to better educate and better engage with those participants and I'll talk about that in one moment. But despite the fact that this entire effort we're still in this test and learn phase, the contribution from this to our overall flows has been meaningful. That 5x you're seeing in the third part of our funnel in terms of migration to advice, that's associated with a double-digit billion, a comfortably double-digit billion number of flows into our reinvestment households. And let me explain what that means because some of you may not be familiar with the term reinvestment. If you're a first account Morgan Stanley comes from the workplace and you're part of a stock plan at a company, and then you meet a financial adviser and you open up an advice relationship, we classify you as a reinvestment household. And the notion there is you're taking the assets that come off of a corporate plan, whether it's a stock plan or a 401(k) plan, and you're reinvesting them into a personal asset allocation portfolio designed to help you achieve your financial goals. Well, it turns out, and this is positive news, the term reinvestment is a bit of a misnomer because only a small percentage of that comfortably double-digit billions of growth actually came from a corporate plan where assets have already invested, and we just put in an advice wrapper around them. Only about 10%, 90% came as net new assets to the firm. And so if you extrapolate that more broadly, you're familiar with the fact that we report several hundred billion in unvested balances every quarter. What that means is that represents about 10% of the immediate opportunity that's in front of us. So it is a tool not just to recapture what's best but to build enduring wealth management relationships where we can consolidate clients' positions from afar. So obviously, we're very excited about what we're seeing from an early reads perspective. And so given the success, the obvious next question is how do we keep it going, how do we accelerate it, particularly since as we all know, the earliest fruit is often the lowest hanging. And the answer is pretty simple. We're going to invest behind what works. And this last slide is going to get into the weeds. So bear with me, but it's the last slide. Let's talk about that. Let's take x as our baseline conversion rate, meaning less let x equal the percentage of leads that become full-service advice relationships when we simply distribute those leads out to financial advisers as soon as we have the appropriate permissions in place from the company. That was our original approach. But it turns out, if you send out a bunch of leads and an adviser calls a participant 3 weeks before investing event and says, I'm from Morgan Stanley, and I'm here to help. The conversion approximates that, which you would expect if you just dialed the phone book. For starters, a lot of those clients at the time didn't even know they were clients of Morgan Stanley, and we since addressed that, and you can go directly to those websites to see all of the branding we do around Morgan Stanley at work. But also they don't know that the person calling them as a leading financial adviser in the industry who's been hand selected by Morgan Stanley to represent the firm and our capabilities and our ability to deliver wealth management. They think they're being called by a call center. So as you can imagine, x is not a very exciting number for us, let's call it, low single-digit percentages. So we paused the lead distribution, and we took a step back until we could build and implement a much more comprehensive participant warming experience, and we've done that. It's live. So now when you join a platform that Morgan Stanley at work is administering you get a welcome e-mail that sets your expectations around what a relationship with Morgan Stanley looks like. And monthly, you get a newsletter where we pull from our content library. In April, it was about tax-efficient investing. It gave us the opportunity to bring Parametric capability into the discussion with those clients. There are also trigger-based campaigns. So when a new award shows up in the system where when you have a new investing event coming up, we have the ability to send you an e-mail. And across all of those different touch points, we're messaging around what being a Morgan Stanley client entitles you to receive and the value of our financial advisers. And there's even a button on those e-mails that you can click on to schedule a complementary portfolio review. And so when we put these participants through this experience, as you can imagine, x grows and becomes 2x. And that's just at the beginning. Again, we think we're going to get better at matching that right content to that right participant at the right time. So we expect that to increase. But in terms of where we're focused, where we want to put every single participant through that warming experience, and that's what we're doing this year. Next, we looked at corporate events. So what is a corporate event? Think of it as any time where we can engage in real time with a participant leveraging content from Morgan Stanley's library. So seminars, webinars, office hours, we're even in discussion with some of our clients to put a branch on site because corporations are incredibly focused on their employees' well-being right now. When someone goes to an event, it turns out that there is real value in getting people to take a step back and focus on their financial picture. So when they go to events and when we connect them to a financial adviser, x becomes 7x. So what are we doing? We're scaling the number of events that we run. We expect to run 30% more events this year than we did last year. Next we looked at referrals from relationship managers or RMs. And those are the folks in the call center who are servicing calls that could range from user name and password questions all the way to the tax consequences of exercising options. And what we've done is trained a handful of those RMs on how to engage the participant in a wealth management discussion. And if appropriate, refer them to a financial adviser. When that happens, x becomes 10x. Now obviously, there's some selection bias here because we're only referring to people who actually raised their hand. So it's a friendly denominator, so to speak. But it's still a very potentially powerful source of new flows and new referrals because right now, only a very small percentage of our RMs are trained. We expect that to get to 100% by the end of this year. And then the last thing we looked at is the same full process but with our executive RMs. And these are the senior service folks who are paired on a one-to-one basis with the top executives at the clients, providing white glove dedicated coverage. And what we did is we paired a number of those exec RMs with our private wealth teams to test whether a relationship between the PWA, our private wealth adviser, and the exec RM, and then the relationship between the exec RM and the senior executive, which sometimes last for several years, could combine to drive more throughput in terms of advice migration. And I'm sure you can guess, based on the way the page is set up, that the answer is it did, and that's 15x. So what are we doing? Well, we're expanding the exec RM coverage model. So I know I've blown through the time. So let me just take a step back. Obviously, what we're talking about here is a significant amount of execution in the coming weeks and months and years. We're talking about people. We're talking about technology. We're talking about changes to our operational processes. And importantly, we're talking about a risk and control framework that oversees all of this and ensures we are appropriately discharging our guardianship chip and regulatory responsibilities, but we're committed to staying this course because we believe in the upside. The opportunity, as we've talked about, is significant. The early results are incredibly encouraging, and we are confident that this effort is going to become an increasingly important contributor to the growth of wealth management overall. So with that, I will pause, and we can do Q&A.

We have time for 2 quick questions.

I really must have blown through it.

First question is just on how you're driving this. You talked quite a bit about training the existing force as well as bringing in new talent. Could you talk about the tech stack side of the platform here to drive growth. How fully baked is it? Is it partially done or fully baked? And if partially, how long to be fully baked?

Yes. It's a very important question. And I don't think any of us would ever say our tech stack is big. There's too much going on and too much to build. But conceptually, the way that we think about it is really across 3 horizons. There's the technology that we've already built that we want to continue to differentiate from others and take the feedback from all the use cases. So that's the mature tech that we want to continue to put white space between us and our peers around. And in that category, I would put all of the modern wealth toolkit back from Expo 1.0, and there are some tweaks we're making, for example, even this year to the planning capabilities that we think will be really unique, particularly at the high net worth side. Then there's the tech that we're about to launch. And a lot of what I talked about here falls into that category. So one of the things we've already done is connected the E*TRADE account to Shareworks so that from Shareworks participants, when those shares vest, they automatically dropped to a participant account. I think we shared a metric of getting to 90% by the end of the year, and we are on track for that metric. Also in that category, I would put our project genome, which is the engagement engine that looks at all of the different interactions that a client has with the platform and figures out how do we render pages and construct an experience in real time that best helps that client meet their wealth management goals. And that's kind of about to be released and some of it is released. So that's horizon number 2. And then horizon 3 is making sure we're still being innovative. And we've had a number of very interesting conversations with emerging big-thinking fintech firms and general tech firms to figure out how can we take just some of the innovation that's happening, not inside of Wealth Management, and deploy it to help our advisers better serve their clients. And so we've got active efforts across all those 3 phases and probably saw we released a new innovation engine in Wealth Management to help deliver against that.

So we have time for one more question, which is on how do you think about bringing in the digital assistance, the virtual FAs or the full service FAs to an individual at the corporate client? I'm just trying to understand how proactive you are with those introductions and what's the timing for those?

Yes. Well, it's a complicated question because, obviously, every client is different and where they are in their advice journey is different. And so in order to make sure we best make that pairing, we're capturing a lot of data. We're taking a lot of feedback. We're looking at how clients interact with the platform. We're tracking how often they call in. We're tracking what they call about. And we're trying to infer from that set of interactions what they're trying to accomplish in their life. But we get a bunch of clues along the way. And rather trying to trying to describe kind of each of the different journeys and how that works, what I would do -- and this is admittedly a cop out, but what I would do is suggest that everybody go to the expo that's downstairs right on the back of the lobby, and you can see how we make those decisions in real time because it will help bring it to life and see what we're trying to deliver to help those clients achieve their goals.

And the expo is open through Wednesday?

I would imagine.

Very good. All right. Jed, thanks very much for joining us this morning.

All right. Thanks, everybody. There's some seats upfront, if you want. We are pleased to have with us today, James Gorman, Chairman and CEO of Morgan Stanley. James, thanks so much for joining us. I know you've been joining us for many years now, and I appreciate that in your 12 years as CEO. Is that right? Excellent.

Are you counting, Betsy?

No, no. I -- well, we're analysts, so we quantify everything. Go with numbers -- so we lean on. We just heard a terrific presentation from Jed.

Yes. That goes great.

What do you think?

I think it's interesting. We've been talking about -- obviously, we talked a lot about the wealth management business. It's gone through incredible change going back to 2006 when we really started on the journey of make it sort of Morgan Stanley caliber and earn the respect of the rest of the institution and then carry its own weight then become a vehicle of growth. And now I think unambiguously, it's a technology play, which a lot of people probably doubted, but at the end of the day, you had to have the evidence, you had to prove the evidence. And the combination of the Solium deal, the Etrade deal, the combination of that, together with the digital bank, the digital workplace, the funnel that Jed talked about, and all the investments they've made around sort of virtual adviser, Next Best Action and now breaching out into AI, in particular, and managing our data. I think it puts a lot of legitimacy around why it's gone from being the source of stability to the source of growth. So yes, I thought Jed did a great job of articulating all of that.

That's great. So let's just talk.

I don't know if you might room for questions.

No, he lets you to do the Q&A part of that. So we're going to drill down and to open a little bit. But I did just want to kick off the Q&A session here with just a question about the quarter. It would be interesting to understand how you characterize it, especially as it relates to client activity, engagement given the volatility we've had?

I mean we're in sort of a brave new world right now. And I don't think there's anybody in this room who could accurately predict where inflation is going to be a year from now, and we can probably more accurately predict what the Fed does. I thought at the beginning of the year, I told a group. First, I think I thought the Fed should have raised rates a long time ago to get some sort of something in the closet, if you ever need to cut rates in a recession. I mean there are 2 reasons [indiscernible] [ threats. ] One is to -- so the economy at the other is to have ammunition to work with. But we are where we are, and I felt like the 4 sort of first rate moves would likely be felt to me 50 bps a pup. And we may actually -- I think the market is pricing this morning even more aggressive than that. So we're clearly in a different world. But I think what a lot of people are forgetting it's against the backdrop of consumer balance sheet is very strong. Corporate balance sheet is very strong, enormous refinancing. I mean I don't know about you, but I took out a mortgage recently for 2.5% at the beginning of the year. And I was not the only person in the country taking mortgage out in the last couple of years. So we've got access to a lot of cheap debt. A lot of people save money, a lot of high savings rate during the PPE program and the whole last couple of years have COVID so the consumer is in much better shape and employed importantly. So that's sort of number one, the corporate term better position. The markets are in a very good position. But I'm much more comfortable when you've got that -- if you're going to have something off kilter, I'd rather have the markets off kilter, then the fundamentals driving consumer credit, particularly off kilter. And we've had plenty of cycles where things look more shaky economically in the markets are basically totally different story. That scares me a lot. So this correction, this environment, this is what we're paid to do. I am totally relaxed about it. I don't think we're falling into some massive hole over the next few years. I think eventually the Fed will get hold of inflation. And -- but it's going to be bumpy. People's 401(k) plans are going to be down this year, but we're unlikely at this stage to go into a deep or long recession. It's possible we go into a recession, obviously, probably 50-50 odds now, but that's okay.

All right. You're ready.

Yes. That business was actually designed for this kind of environment. We always said that we would. We wanted to be fine when things are really difficult. And if that means we're not as good as some others when things are on fire, so be it. Because we have some parts of our business that obviously are growing. So right now, just looking at the business is, obviously, banking is in a very difficult spot right now. Is banking permanently impaired no. It's just -- it's delayed. So I take sort of industry structure as distinct from environmental change where we're in an environmental change. Who is bringing the company public now? How many people have confidence to go to their Board and say, "Let's do this M&A deal when you don't ran particularly in certain sectors when you have no idea what the pricing will be in a week. So banking is going to be in a hole for a while, that's fine. It's just a late. Trading remains active, not as active as the start of the year, obviously. And we'll see over the next few months, but if trading softens over the next few months, so be it. That's again, not the end of the world. It's people sort of retreating and watching and waiting for things to settle down. And Wealth Management remains incredibly stable as it's supposed to. That's the business model. And our investment management business is also -- it's got pieces of it, that have more variability like the infrastructure or less the infrastructure, more the PE funds and things like that. But in aggregate, still pretty stable. So yes, I wouldn't say totally relaxed, but a pretty relaxed.

Okay. What about by geography? Any changes there? Any differences I should say.

Well, Europe is going to be solid in the U.S. this year for sure, and probably for next year. So fortunately, we're very balanced. We're in all 3 regions in the world. We're, I think, #1 in equities in every region in the world, 1 or 2 or 3 in banking in every region in the world. Wealth Management is dramatically overweight U.S., and that happens to be a very good position to be I've never had a problem. People ask me about why are we in this country or that country with wealth management? Well, would I rather be in Poland or Paramus, I'd rather be in Paramus. It's simple. We have one infrastructure we're dealing with, one compliance organization we're dealing with one rule of law we're dealing with, one set of regulators. It's a simple business model. It's all about scale. So I think geography, I would suspect China is a little bit of a wildcard right now as they're coming up to the Communist Party Conference, I think, in October, November. So things there, I think, will be slow as people are very tentative coming into that. Probably a bit like our midterm elections coming up. But yes, the U.S. will probably do a little better relative to the other regions this year. And we're bigger in the U.S. So I'm okay with that.

Okay. I appreciate the Poland versus Paramus explanation because I was kind of.

I don't mean literally, Poland just starts with P. I could have said Australia, they would have been more generous of me.

Just want to make sure. No, I know why Okay. And then just because one of the questions I get on other companies that I cover is just on the volatility and how wealth is handling the volatility because when you get volatility like this, there's a question of do you hunker down with more deposit growth? Or do you take the opportunity to reinvest? What are you seeing in the shop here.

Well, they're very, very different wealth management models. If you look at second pricing some of our competitors lately. And there's clearly a difference in performance. Some operate with very high multiples and depend upon very high growth, which -- and embedded in that is a lot of activity. That is going to be more difficult, right? Because if you -- you haven't got the activity, you haven't got the growth, you don't deserve the multiple. So it's sort of category one. Our business model right now in the wealth management revenues, which, let's say, rough order of -- if there are 252 trading days or something a year, $100 million a day, right? So it's a $25 billion business. Of that $100 million a day secondary trading buy and selling stocks and bonds is probably about 12%. Our primary business underwriting is probably another 6%. So you have a lot of other stuff that doesn't actually go up and down with the market. Now a big chunk is the fee-based stuff, right, which is probably, I don't know, 40-plus percent of the total revenues. Then you've got deposits and you've got account fees and so on. By the way, deposits, we are losing deposits, and we're going to be rate friendly. It's very attractive for our business, what's going with rates. But with the fee-based stuff, what people forget is its fees on the whole account. It's not just fees on equities, let alone high-octane growth equities that are getting killed at the moment. So whatever percentage of fees you're paying, you're paying it on the whole account, the whole account isn't impacted in this market environment. So we've modeled and Andy is over here -- and I've asked you many times over the years to model down 20% and stay down 20% equities for several years, down 10%, down 40%. We've kind of modeled it all out. We know what it looks like and doesn't look that bad. -- because you have these other counterbalancing things. By the way, every time somebody is panicking selling the market there's somebody else trying to buy. So activity doesn't go to 0, it just doesn't stay inflated which where it was in the last couple of years where you saw a number of new entrants who are basically driven by activity, activity in crypto, for example. Well, that's obviously look about Bitcoin some this morning. I mean, that clearly is going to be hurt if that's your model. So it's -- listen, I don't want to be naive about it, but or pollyannish, but if we're in a sustained down 20% type market environment, I think that business is still going to earn 25% margins. Once upon a time, the thought of a 20% margin was almost have seen. Now I'm telling me in a very difficult market. It's going to earn 25% margins. It's that's where we are.

So that durability is helpful to the model. And I know that Jed talked about that a little bit touched on it, but maybe you could highlight your views on wealth and its contribution to durability and long-term growth for the overall.

I mean it's exactly what we laid out, honestly, 12 or 14 years ago. People like [ Steve ] who have been in the stock for years and kind of understood the case and need a proof points along the way, but it's -- firstly, the scale of the business and what that does to your margin because you're covering your fixed costs, obviously, once generates 25% plus margins. And with where rates are going in a decent market environment it will be 30% margins. And it will be there is no doubt in my mind about that. It might not be this year, this month, but it's coming. So the stability of having nearly $5 trillion, I guess, with the market downtick, I don't know what it is now, $4.5 trillion, it's just big. So you don't need -- at any day, 5% of that money is looking for an idea. So we've got about $200 billion trying to move. So every [ P ] firm in the world, every fundraising firm in the world, every hedge fund in the world wants access to that platform. And last year, we brought in over $450 billion, I think it might have been $420 billion [indiscernible] this year will not be as high -- and this quarter, I expect will -- should be the lowest quarter of the year because of tax revenues, right? All the money comes out April, May. But the scale which drove the margin is done. The deposits over $300 billion is very friendly to this rate environment. The market activity in the asset prices are coming down. That's unfriendly to the business model but the aggregate picture is really solid and really durable. Now if you can put in some of the growth, the funnel that Jed was talking about and moving into along his spectrum, both assets held away, but also business opportunities we've got with clients that we're now penetrating through the stock plan business and so on. Then you've also got an additional series of growth factors. We had a simple business model. Financial advisers go out and manage relationships. We tried to move them from transactions to fee-based, and then we tried to add some banking products to. That was the business model. And it's now evolved into all the stuff Jim was talking about, where instead of like one model and the question is how many did you lose this week to competitors? How many did you hire? And what percent of the assets did you keep and what percent did you bring over when you hired them. That model was very simple, and that's done at sort of nailed. What we've been searching for in the last several years is how do we add the growth vectors to that. So frankly, we push our multiple up from where trading multiples are to something of a hybrid multiple between us and Schwab and others who are trading well over 20x. So I think we're trading 9 tons this morning.

[indiscernible] 20 anymore.

Well. That is -- There is that too. They've done a great job. I mean, hat's off to them.

Walt and [indiscernible] what adjacencies to those businesses do you want that you don't have right now?

Between the way the 2 of them work together.

4 independently.

Well, I think the problem with them is same, was -- it was very narrow, meaning we had very few active portfolio managers. So you've got sort of key man risk, if you will. -- it didn't have the kind of technology platform later Parametric gave us. It wasn't particularly big in sustainability or impact investing, which COVID is -- and our fixed income platform was small. So combined to fixed income platforms, you've got some scale. Parametric is it's just like it's sort of an animal, right? This thing is an animal. And this aligns so well with our client base but other wealthy people. That will grow. Apply our global wholesaling capability to their funds because they didn't have the funds to go internationally. Get more balance in the active fund management model, where you're not dependent upon 4 or 5 portfolio managers in their teams, but 15 get meaningful in the impact investing sustainable space suddenly, you've got a business which is really interesting in a lot of verticals. Then you add in the Morgan Stanley Fund of Funds businesses and you add in the Morgan Stanley Infrastructure PE, [ mezz ] finance and the Asia PE businesses and real estate, okay, you kind of got all the verticals. From pure old to packaged olds to structured tax investments to active fund management to fixed income for management and money market funds. What you don't have is the pure beta like index in place, which is fine. We don't want that. So I think that business is really additive because when you combine it with the wealth management business now, it's nearly $6 trillion. As I said, I think we can take it to $10 trillion over several years. At 50, its running the combine business is about 52 basis points. So $6 trillion 52 basis points is $30 billion a revenue suite, 30% margin, durable growth. Why are we trading at 9.

Jed mentioned in his presentation, something about retirement services and [ 401(k) ] planning and that kind of thing, which is an offering that is in a business that seems to have some very large-scale players in it. So could you just give us a sense as to how you're thinking about going and do that?

The genesis of this actually was several years ago when we thought the vision was there are 3 ways that people interact with their money. I mean, very simplistically. One is through some sort of enabling human adviser. It could be a local private bank. It could be the trust bank, it could be an RIA, it could be a financial adviser, private banker, category 1. We're now #1 in that category. Bank. Category 2 is you interact with your money through technology only. Most people actually have some hybrid who've got like serious money, but many people and particularly people all in the life are purely technology and maybe in 10 years, there will also be purely technology. We were behind [ Schwab, Ameritrade, Fidelity, ] pretty much everybody. When [ Schwab and Ameritrade ] merged, it took out the 2 logical buyers of Etrade. And the day that deal happened, I walked into [ John Pruzan, ] who was our CFO and said, "We're going to buy Etrade, because we needed to fix that box. We were building at $300 million a year. I think it takes time, right? We're just not as nimble as Etrade was and they had it and they had a digital bank and they had about $70 billion deposits. So check category #2, behind Schwab and Ameritrade for sure, behind Fidelity for sure, but now #3 and legate number three. So every client in Category 1 who has a relationship with the one of the other guys, why have that? We can do it for you here and link it all. I've just linked my Etrade account to my Morgan Stanley account, it's beautiful. The third category is through your place of work. And Solium gave us the -- we had the business. We outsourced it so [indiscernible] it's like, but for your time, Victor Kiam when he had -- he brought the razor company. He said, I like the razor so much I bought the company. But we saw what Solium was doing for us. We like what Solium doing so much, we went and bought the company. Now the secret little benefit of that was when we bought Etrade, you could combine in the workplace businesses. So suddenly, we could and see how we could take the pieces of the retirement business we had in these 2 verticals, combined with Workplace, get into the place of work and then the various retirement accounts that people have now suddenly you're in, let's call it, Fidelity space, right, who have been genius at it. And they're a monster, we're not, but we're now -- I don't know where we are on the stock plan business now. We're #1 or 2 in the country, right, 1. So we've kind of got -- we've got now the bones to go after the retirement space. And now it's up for these guys to figure out how to do it. But it's a very exciting concept to be #1 in anything that deals with the human being number 3 in anything the deals electronically and then really #2 in the total retirement space in anything that deals for your place of work.

Okay.

That's the plan.

We got a nice ticket to ride.

Yes. Roll it and it will be decades. Decades. Americans a little secret is rich people get rich faster. It's compounding, and we're right in the middle of it.

So I wanted to pull up a little bit and talk about more structure of the organization. A year ago, you named Co-President, COO, a new CFO, a couple of other changes. I talked last year that, that was about succession planning. And then at last month's annual meeting, someone asks you if you plan to retire soon. So I wanted to see if you could help us understand what your latest thinking is on planning for the future leadership of Morgan Stanley.

Well, I think anybody in these jobs has to set up the organization for when you're not there. And it just sort of like push the ball down the road and say, wow, we'll eventually get to that I think personally, it's just not the Rhyme. I mean it's contrary to everything else I do in business. I approach succession management development exactly the same with the same strategic mindset as you do business development. And so yes, we changed responsibilities for Ted and Andy became Co-Presidents. Dan is running Asset Management had been Chairman of Capital Markets. And now is responsible for the Etrade the Eaton Vance deal and driving that. And John Pruzan, we made as COO overseeing all of technology, all of our platforms, all of our resilience and Sharon Yeshaya, who is also here is our new CFO reporting to me and John. And we put Mandel Crawley as Head of as Head of Human Resources. We put my Pizzi, former CEO of Etrade as Head of the banks. And obviously, Jed in his role with wealth management. So we brought 4 younger people under the operating committee, Jed, Mike, Sharon, Mandel. We clearly identified 4 more senior people in the operating committee as people that we feel all have the capabilities to replace me, but they need some broadening, right? You go to just fall into these jobs. You got to be kind of trained for it. So that's the plan. And when I was asked this, I guess, a month ago, they said you're retiring soon, I said, No, not soon, the operative word soon can meet tomorrow. No, I'm not retiring tomorrow. But we clearly and unambiguously have a plan that we're working with the Board, and I feel really good about it. And it will happen in a very healthy natural pace. And the great thing is we have I think for people who could all be CEOs of public companies. We just got to figure out who's the right person at this time, whenever it is to be CEO of Morgan Stanley.

Okay. What about the new roles that you announced recently in risk and in oversight. Can you walk us through your thought process there and make those changes?

Yes. We put Jon Pruzan overseeing given his work formally as CFO and his work now running resilience and operations and technology and cyber certain nonfinancial risk. We wanted somebody who could bring together all of the firm's efforts on that stuff. And John is extremely well qualified to do it. I felt like, listen, you need 3 lines of risks, you need the frontline, first-line defense where if they're doing their job, the revenue producers are managing their run risk properly. You need the second line, which is the risk management department and you need internal audit. And we felt like we needed to strengthen the front line, and we've moved some people into frontline risk roles. We had a steering experience, I'll say, with our CAGR. That was a real smack in the face. And we don't like smacks in the face. But if we're going to have one, we are sure is anything we are going to learn from it. And that was part of the learning in this process. And then on the nonfinancial stuff with just data security, cybersecurity, operations, resilience, geopolitical risk about where you put your platforms around the world, we felt like we needed to have much more structure and intent around that. So the combination of those 2 things brought forward this new role for John.

Okay. Got it. I just want to take the temperature to the room, see if there's anybody out there with questions that they want to raise. So just to let you know, there is the opportunity to ask questions if you want. All right. At this stage, I'll turn it back to my prepared questions. To pull this all together, how should we be thinking about what kind of revenue growth you're expecting over the next several years? And do you think you can resource that with what you have in place now? Or is there more to do in either the tech side or in the human capital side.

Well, the good news is, and we'll probably talk about capital, but we have excess capital, so we can invest in the business, and we've been doing that, as I think, Jed articulated very well. In the wealth side, we've obviously done it through acquisitions with Etrade and Eaton Vance. We have more circumspect on growing the balance sheet, I would tell you. I mean the bar we're much with some velocity of sheet and size of sheet. So the bar is higher on that. And I think that's been prudent coming to this cycle. We should grow, I don't know, 2x GDP growth or something. And -- but the mix of our business is changing so much. If we've really got a growth engine embedded in wealth management, that's very cool. And when you see a year like last year, we brought in over $400 billion in new money and barks appreciation, $400 million $500 billion, $900 billion, how many companies in the world have $900 billion? I mean it's not that many -- you've got hundreds of wealth managers all over the place trying to bring in 5, 10, 15, 20 billion a year. It's just a different so compounding on that. The key is though keeping obviously, the velocity on the asset, meaning the revenue dollar is stable, and that's the key. So listen, in this environment, I don't even think about growth right now unlike who cares, whatever if you're investing in stocks for the next 6 weeks performance or something, then good luck, right? But if you're investing for the next 5 to 10 years, then you have a fundamentally different view. And we are positioned for growth. We have a structure where we're 1 of 4, maybe 5 global investment banks, truly global investment banks active in banking, fixed income underwriting and equities including prime brokerage cash and derivatives. We're one of probably 2 best wealth managers in the world. And now we're a very credible $1.5 trillion asset management business. So we're in all the spaces where unless you go into a period of financial deflation, you're sort of in the right ZIP code. So it's a question of managing expenses and making sure you continue to generate about 50 bps on the Wealth and Asset Management.

Got it. Okay. Yes, the inflationary environment, to a certain extent, plays to your. Set up. Right? Okay. On capital efficiency, Morgan Stanley is one of the highest levels of excess capital.

Just got over COVID yet again. So..

So No. It's the second time or...

Well, I thought I had a once or mini one in December, but I only just a positive once. So I think it was a fake even though it fell sick. I think psychosomatic. You test positive, my god, I've got to COVID. I'm sick. This one was another real one. So I've seen all of COVID that has to offer that's good. So I don't need to see it again. I really done.

What makes you stronger, right?

Yes. No, I feel good. That are still a little bit of a cough. So I apologize. No problem.

We have more than 6 feet between us, just everyone knows. -- On the so capital efficiency Morgan as one of the highest levels of excess capital among the GSIB. And I know we're getting CCAR next week, but maybe you could give us a sense as to how you think about capital and using it, especially given we've got some high market [indiscernible] right now, there's some recession risk. Where do you stand on excess capital utilization?

First on CCAR, I'd be surprised if I can't speak for our competitors, but if our CCAR numbers were meaningfully different. We don't have a new Head of Supervision they haven't redone all the models. The scenarios that we saw that you run -- we're all -- I mean, listen, some are harsh or some aren't. So how it all flushes through our system where our PPNR should be higher. We're making more money. We've now fully integrated advance and Etrade financially. So I don't expect a big shift in that. So then the question is, let's pretend we're at 13% last year. Maybe we'll be between 13% and 13.5% -- but who knows, right? We'll find out, I guess, on the 23rd. But let's put tenants around that area. The question is how much of a buffer should you have? And I've been definitely heard on the conservative side of this. Someone say too much, you should at least have a 50 basis point buffer. Some banks are now talking to the regulators about sort of destigmatizing penetrating that buffer. That's fine. But everybody is going to do what they're going to do. But I have no interest in going beneath eating into what I call a natural buffer. We've tended to run with a buffer on a buffer, which would get you to about 14.5%. And then we've had anywhere between 14.5% and 17% depend on what's going on in the market, volatility, where the RWAs are, et cetera. And I felt '17 is too high, clearly, and we wanted to eat into that. We doubled the dividend last year. It was sort of our shock and ore campaign, a $12 billion buyback and double the dividend. By the way, not for nothing. Every day right now, we're buying back share at about $73 or $75, whatever it is I mean, this is a gift from heaven. And secondly, we're retiring $2.80 dividend every single share we buy. So there is a beautiful virtuous circle. So you're retiring -- we're going to return about 6% of our float this year. And we're giving shareholders a 3.5% return on the dividend. So you getting a 9% return with that getting out a bit. So the plan is clearly use excess capital for legitimate business purposes, number one, if we see deals that make sense, that it's unlikely in the next couple of years that we do a large meaning $5 billion to $20 billion type transaction, which was where I think Eaton Vance was 7, Etrade 13. I think it's unlikely right now we'd be doing something like that. It's possible if something magically pulls out of the sky, but unlikely. So we're not going to use a lot of capital on deals we've got still very -- if we earn -- last year, we're earning about $3.5 billion a quarter of this year, just pretend you're earning $2.5 billion quarter, you're still making $10 billion the dividend right now is about $5.5 billion. So you've still got $5-ish billion of buybacks before you start eating into any buffer. So I'd like a little more flexibility on our buyback range, use it as a bit more of an accordion over the next few years, depending where the stock is. I mean right now, I'd be all over it. We are all over it. But on the dividend, we said for a long time that just as a conceptual idea, the dividend should reflect the earnings coming out of Wealth and Asset Management. I sort of see them as a yield stock and see the trading businesses, obviously, is more of a growth stock. They're highly volatile, pure trading and so on. And -- so I would expect us to continue to we're not going to double the dividend, obviously, but we'll continue to move on the dividend in the years ahead. And I think that's shareholder-friendly. I think it's smart. I think it's consistent with our strategy. And at some point, if the stock gets back to where it was, I guess, being at around 109. You start getting questions, when you're buying back at 2x book, so it is nourishing. Right now, it's very nourishing.

All right. Steve has a question in our final minute.

James. This is more of a general macro question. But whenever historically, the Fed has raised rates dramatically or quickly, that always tends to precipitate some prices in the capital market. And now we've got a particularly fast revising cycle and maybe quantitative tightening on top of it. So when you sort of look across the business, and this is really more of an ISG oriented question, what areas concern you? And even going back to like 2011, like this now redenomination risk creeping up again in Europe. The rapidity rate rises is similar in 1994. I mean it seems like there's a lot that could go wrong, nothing is going to go wrong for you. But how are you protecting yourself? And how are you thinking about the pockets of risk. And how they may or may not affect Morgan Stanley.

We started talking as an operating committee. I think I sat down with the Global Management Committee last August or September and said we need to start pulling our horns in. It was inevitable. This inflation was not transitory. It was inevitable the Fed would have to move faster than they were projecting or the dot point suggested. So therefore, there was a legitimate recession risk. I still think I used to think it was about 30%. It's probably more like 50% outside 100%. So it [ behooves ] you to be a little cautious. Fortunately, we've got those 2 deals, which are very stabilizing in the house and effectively done. We're still running off some, I think, some integration expenses on Etrade through about the end of this year, but it's chump change. So I think -- listen, I think the -- we're in a very different period from certainly where we were in '11 and earlier because we don't take principal risk. So I mean, yes, you've got to syndicate stuff. So any deal that comes up, we focus a lot on syndication plans, right, getting it out the door quickly. We don't take proper risk. We don't own oil facilities. We don't own shipping companies that we have. We don't have casinos half built in Atlantic City. We're pretty simple right? We manage the flow of capital between those who have it and those who need it as an agent. So now could you lose money in the SPG board and credit? Sure. Massive I doubt it. We don't have the kinds of trades we had on in the crisis, anything like them. Could we lose money in the margin book? The margin book is down by about 1/3 just with what's going in the market volatility. I mean we lend to put a bluntly wealthy people, their own money. That's better than lending people who are strangers who aren't well for your money, just as a business proposition. So our liquidity is strong, our capital is strong -- our credit profile is strong. We're not in consumer credit unsecured in any way. So my focus actually is more on nonfinancial risk on data stability, on cyber risk, on operations risk given where we are around the world and some of the geopolitical uncertainty associated with that. I think that's -- that could be the sort of fall out. As you see, some institutions going to get hurt and potentially fatally damaged, small ones, I'm not saying -- I think the U.S. banks are actually in very good shape. So I'm more on the nonfinancial risk is where my concerns are.

So last question here, James. You're famous for your strategic priority list. Maybe you could help us understand what's on that today.

Well, it wouldn't surprise you. It's the topics we've just talked about. One is data integrity and both using data as a capability and using it and protecting it defensively. That's sort of probably the #1 issue completing the integrations of these deals, which have been going great. So I don't see any problem, but we want to get them done, continue to drive succession planning with the Board, which we just had a session in May. So that's will continue over the next whatever years that we do that. And there won't hopefully be any abrupt like major event. It will just be very smooth, developing the next generation of leaders, which have specifically put out for the Board. So things like that. It's not -- we're exploring some interesting ideas in Asia right now. Where we could expand our footprint without doing major transactions. So that's something I'm -- I would like as an institution Morgan Stanley is about 15% in the Asia region. As an institution, that feels to me 10 years from now, that were the case, that would be very disappointing. So I'd like to do without shrinking the U.S. or Europe. So we're looking at some pretty innovative stuff over there. So that's the strategic thing. And then capital management, like navigating through this new cycle through CCAR I'm sure the next CCAR test will be tougher. That's why I don't want to read into the buffer. I don't want to wake up with a little surprise and find you wade into a buffer that you don't actually have, right? So management, development, succession, capital planning, if anything buys strategically Asia focused, resilience, data management, data strength and get these deals locked and loaded.

Super. Sounds very good news to have.

Thank you. Thank you, everyone.