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Sirianni: ETrade Deal — What Does it Imply for Advisors?

February 27, 2020

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Busakorn Pongparnit

Articles on the Morgan Stanley / Etrade deal range in tone from drinking the Kool-Aid and believing MS’s main mission with the deal is to get referrals for its advisors, to shrill indignation that MS would have the nerve to acquire a firm that had an RIA in it. The reality is more complex than that, and has deeper, long term meaning for advisors.

MS is making the same play that Goldman and Merrill have already made, and using some of the equity the greatest bull market in history has provided to do it. Wirehouse leadership across the board believes the future is in the mass affluent sector of the marketplace and the future delivery system is technology. Why should they believe anything else?

The current advice delivery system is old, expensive, and a pain in the ass to manage. As greatest generation clients die, their inheritors (90% of them) leave their parents’ advisors for their own, which has been generally moving money around the advisor table. That being said, when GenX follows their parents, millennials will more likely be using a new tech advice delivery system rather than an old broker (our industry has had 0% growth in new millennial assets over the last 3 years…0%!!!).

MS is reading the writing on the wall, and looking for ways to address the demographic realities of an aging delivery system and an emerging new tech saavy consumer. The Etrade deal helps bridge the gap. In one fell swoop they get a great mass affluent tech play, better than United/Goldman one could argue, a few hundred billion in institutional assets, and an RIA.

What does it mean for advisors? It’s your wakeup call, Bud Fox. If you are not building a practice that can accommodate new technology, and a diverse team that can relate to millennials, you are SOL. Don’t be smug and think you are doing it. You are not. 0% growth in millennial biz means you are deluding yourself.

Further — mass affluent, tech driven firms, will naturally drive down commission revenue for all. You must manage the future of your practice with an eye towards how you will get paid, manage costs, and provide services. Zerocom plus mass affluent tech in big firms bodes poorly for the long term stability of commission business. You must decide what future platform works best long term for you and your practice.

Oh, what about the RIA? I predicted this would happen a few months ago (read 2020 predictions). I have always said that an RIA with the power, products, and capital of a wire like Morgan Stanley would be very hard to beat. This deal should make that easy you would think.

Alas, this is just a toe in the water for MS. To get wet, and succeed, MS will have to go very far, and adopt the overarching principles that are the drivers of the independent movement in a transparent way. That doesn’t feel as likely. Until then, if you want to believe that Morgan Stanley spent 13 billion dollars to buy leads for its advisors, be my guest.

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