Hello, everybody. I am very pleased to say, for my last fireside of the day, pleased to be joined up here with Jed Finn. Before I get started, Morgan Stanley has asked me to do a disclaimer. This presentation may include forward-looking statements which reflect Morgan Stanley's management's current estimates and are subject to risks and uncertainties that may cause results to differ materially. Morgan Stanley does not undertake to update any forward-looking statements. This discussion, which is copyrighted by Morgan Stanley, may not be duplicated or reproduced without consent, and it's not an offer to buy or security. Okay. Lawyers are happy. I'm really psyched to be here with Jed. We've known each other for a long time. Jed leads one of the most successful and scaled wealth management platforms in the world. Recently posted the third quarter results, revenues of $9.1 billion, pre-tax margin of 30.4%.
Under Jed's stewardship, wealth management business has grown to a massive $8.4 trillion. Most importantly, most people don't really know this, Jed was actually the architect of the funnel, something that has basically become part of the lexicon around the wealth management space. Please give me a warm welcome for Jed Finn.
Thank you. Appreciate you having me. There's a lot of people at Morgan Stanley involved in making the funnel work.
No doubt. I have no doubt that that's right. I have no doubt you're surrounded by a great team. You guys had some news today. I'll be honest, aside from looking at headlines, I haven't really even been able to see it. Maybe could you let us know what you guys did, and maybe that can lend into a broader discussion of the funnel. First, what's in the news and what'd you guys do?
Sure. Thanks, Brennan. As we announced earlier today, we acquired Vinyl, which is a digital transfer agent, and so we're very excited about it. For us, we're very excited about it. For Vinyl, and most importantly, we're excited about it for our workplace clients who have been asking us to deliver this functionality now for a number of years. As I think many people are aware, a transfer agent plays an important role in equity capital markets because under federal securities law, they are responsible for maintaining the ownership record of equity. They hold the source of truth. In the industry today, it's dominated by a couple of legacy firms who have been doing the same thing in the same way now for a number of years. While Vinyl is a new entrant to the space, they are digital first. It's a modern tech stack.
They're cloud-based, and they figured out how to address a number of the pain points that our issuer clients have been complaining about over the last couple years. When you take the tech of Vinyl and put it within the ecosystem of Morgan Stanley at Work, it gives us the ability to address client challenges in a way that our peers are going to find it very difficult to replicate. If helpful, I can describe some of those challenges.
I'd love to hear them.
First, there is a tremendous amount of data that is exchanged back and forth. Remember, on the private side, we're the cap table manager for nine of the top 10 unicorns, for 75% of the top 100, for 50% of all of the almost 1,000 unicorns that exist. On the public side, we're the equity admin for more than 50% of the S&P. The data that goes back and forth in the private to public process is intense, and it's sensitive data. It's PII, meaning personally identifiable information, and companies don't want to be sending that data externally. The reason they want us to be able to deliver the process is so that they can mitigate the risk, because that data sits in the four walls of Morgan Stanley as you go from cap table manager to transfer agent to public equity admin.
That is one of the demands. The second is, again, as you go through the life cycle of private to public, the fewer external third parties you have to deal with as an issuer, the less the administrative burden, the less the cost, which is why if they are already interacting with us on the private side and on the equity admin side, they want us to deliver the transfer agent services as well. Then finally, as I mentioned, because they are digital first, because it is a modern tech stack, they can move a lot more quickly than some of the legacy firms that are mainframe-based.
If you just think about the speed at which private share investors can then get their public shares, it can be up to two weeks in the old world, and Vinyl can do it in an instant, T+1 settlement, which reduces the volatility risk for employees and early investors as you go through that experience. Just in today's world, it helps round out our entire life cycle offering for corporate clients. It will help us serve our existing clients better and take share, but they also have some capabilities that will set us up in the future world of agentic finance and tokenization as well.
Okay. You guys were unique in the fact that you brought, once you bought E*TRADE, that brought the public side. You had the private side with Solium, brought those together for Morgan Stanley at Work. Is this the last piece in order to really have it fully closed loop?
Yeah. It is a great point. If you think about the evolution of a company, when it is two people in the garage, you need a cap table manager. Well, you probably just need an Excel sheet. But as you get more complicated, you need a cap table manager to track who owns what with what voting rights, and that is obviously what we do on the Shareworks side. If you need 409A valuations on the Options side, we can do that. As you get bigger and you need liquidity, we ran $27 billion of tender offers. We are the market leader in doing that year- to- date.
When it is time to go public, and this is a core part of Ted's integrated firm strategy, we show up as one Morgan Stanley, both what we are doing in the workplace on the wealth side and what we are doing through the bankers on the investment banking side. We take the company public. We can do the DSP through E*TRADE. It is a push button convergence from private cap table manager to public equity admin. We can do the 401(k), the cash management, and of course, manage the wealth of the individual employees up to and through retirement. The one gap we had in that entire story was also serving as the transfer agent as well. This closes that loop and allows us to be a differentiated capital markets partner to our important issuer clients.
Yep. Makes a ton of sense. Here we are, we are about halfway through the quarter. There is definitely a lot going on. Given how markets have moved lately, how should we think about the near-term outlook from [Morgan]?
Sure. You said this a little bit in your intro, but I would start by acknowledging that this has been a record-breaking year on a number of different fronts, right? Through three quarters, we are at a half a trillion in net new assets. That is a record. We are at almost 175 billion in fee-based flows, which is not yet an annual record, but will be when we get through Q4. When we talk about path to advice assets, and remember, that is just the funnel in action. Path to advice assets are assets from clients whose first relationship with Morgan Stanley was either in the workplace or in E*TRADE, and then through the infrastructure that we have built, we connect them to a financial advisor to help them achieve their long-term financial goals.
At the beginning of the year, we said that last year, 2025, was a record of $100 billion in those path to advice assets, as you will recall. We are far in excess of that this year. Our lending is up $20 billion. Our deposits are up $60 billion. We are having a record year in alts. We are integrating EquityZen, and we are releasing a ton of functionality on the AI side to help our advisors serve their clients more effectively. By any stretch, we are in the middle of a record-breaking successful year. That said, Q4 is going to be noisy, and it is going to be noisy for a couple of different reasons. Number one, you have got seasonally higher expenses that always happen in the end of the year. Number two, we are exiting some real estate as we optimize our footprint, so we will be taking a charge there.
Number three, we're going to have severance from some streamlining that we've done on the headcount side. Number four, there are a couple of idiosyncratic expenses that are smaller, but whether it's moving towards close on the Vinyl side, whether it's integrating the broker-dealer of EquityZen and Morgan Stanley, and a handful of other things that are going to position us to continue to take share in the future, like I said, it's going to be noisy. Putting it all together, though, you can expect that our 2026 margin will be close to the 30% goal, even with all of that expense embedded in it, and ahead of where we were in 2025 as we continue to drive operating leverage across the business.
Okay. All of those noisy items, that was all contained within the wealth business narrowly, right?
Yep.
Okay, great. Speaking of margin, recruiting costs have been a very serious focus for the street. They're elevated. We understand that growth from recruiting is a relatively smaller part of Morgan Stanley's Net New Assets, given all of the workplace goodness that we just spoke about. Given that, why aren't you seeing more margin expansion than peers? If you guys don't have to pay for that. If we look over the last six quarters, Morgan Stanley's generated stronger revenue and client asset growth than both B of A and Wells, but yet less pre-tax margin expansion. I know it's not all about margin, but could you help us understand why that would be?
Sure. First, I would say, I guess, if you go back six quarters, that's the end of Q1 2025, which is a bit of an arbitrary place to start the story. I mean, the way we think about the strategy is we spent a couple years in the late teens repositioning the business for this multi-channel client acquisition strategy. We bought Solium in 2019. We bought E*TRADE in 2020 and closed in Q4 of 2020. If you start from the new fighting form in 2021, since then, we've had 500 basis points of margin expansion, which I think would compare favorably to the types of firms that we typically compete against. We are laser-focused in making the appropriate trade-off between continuing to invest in the business and building differentiated capabilities, and also delivering returns to shareholders.
In fact, over $0.40 of every dollar we've brought in since 2021 has dropped to the bottom line. You are seeing through cycle operating leverage. If you just look through the first three months of this year, our revenue is up 13.5%, our expenses are up 10.5%, and that is why our PBT is up 20%. If I go back just to January or Q1 of 2025, on a quarterly PBT basis, we are up $800 million, and that is about 40%. You can always pick a specific time where one comparison may not look as attractive, but as Ted has said many times, through cycle, we are focused on delivering higher highs and higher lows, and all of the evidence that we would point to would suggest that we are on that path.
Yep. Is 40% the right way to think about incremental margins?
It is definitely the right way to think about what we have done to date.
Nice way to avoid that one. You built the funnel. It is working. Over the course of the strategic journey, you have built this asset-gathering mousetrap, and showed how it works. Year-to-date, Net New, a remarkable half trillion. You touched on that before. It translates to 9% annualized organic growth. I mean, if we rewind the clock, people take it for granted because you have done such a good job with this business. But if we rewind the clock 10 years, nobody thought that a wire could do that. Obviously, IPO activity helped, right? How should we think about those tailwinds sustaining, and how do we think about narrowly first the IPO impact as those get unlocked, but then longer term, keeping up this growth?
Yeah. First, I appreciate the framing of the question. We have said for a long time, the investments that we have been making, and again, driving that trade-off between returns and setting up the business for success. The investments that we have been making in the underlying integrated platform, in a consistent data lake across all of the channels, in building out the reinvestment network with the financial advisors, in building out LeadIQ and the process by which we provide leads to our advisors when it is in the right interests of our clients, that was always going to pay off during a period of heightened capital markets activity, and I think this year has been a compelling proof point to that effect. All of that said, to your question, I would make a couple of different points.
Number one, when the lockups expire for the various IPOs, we are going to see outflows. Remember, a lot of the folks that are participating in this space are coming into wealth for the very first time, and they have known about it for months or years, or in some case, decades. There are bills to pay, and there is education to fund, and there are houses to buy. If you take, again, a broader step back, which is we think about this business through cycles, when the dust settles, we are going to have significantly more assets than when we started in the firm overall, in the advisor channel, and specifically in fee-based accounts. It is just not a straight line to the end point. I think that is one important point to understand.
The second point to understand is there tends to be an assumption in the industry that the IPO is the event, and then you move on to the next thing. Actually, for us, there are multiple waves of opportunity that gets unlocked significantly after the IPO happens, right? On day of, you have this immediate creation of a public equity admin, but the NNA impact of that varies. Some cases, you have options versus RSUs. In some cases, you have lockups versus not lockups, and the combination of all of that is going to affect how much you actually see in the quarter of the event. That is the first wave. Secondly, as we talked about, we do the DSP.
Some of the participants in the DSP, the Directed Share Plan, are not Morgan Stanley clients today, and they go right into the funnel, and we use those touchpoints to build relationships. Third, you have our existing clients who participate on the open in some way, shape, or form, and that event is associated with NNA that comes from them. We have actually found that our existing clients bring cash from other places to participate in the IPO, so that is another source. Fourth, as lockups expire, we distribute shares to the LPs of a number of the venture capital and private equity firms who have participated. Some of them are our clients, which is great, but some of them are not our clients. Again, that is another opportunity for us to demonstrate to typically high-net-worth clients that the solution set that we can offer is differentiated.
The fifth, of course, is the employee stock plan, which continues in perpetuity, because as employees are getting equity-based compensation, there are regular vesting events, and we bring all of the education and tools and resources to ultimately turn them into advised clients. It happens over an extended period of time. If you want specific numbers, we have always said that there is a bit of a tail to the path to advice assets, because someone might be experiencing a financial advisor relationship for the first time and not ready to go 100% into fee-based accounts. What we have seen in practice is, in the first year, it is only about high 20s, low 30s percent of the assets that are in fee-based accounts.
By the end of the second year, it gets to about 40%, and it is really not until the end of the third year where you get to the relative average of our fee-based penetration, which is close to 50% in the advisor channel. You can see that using actual dollars. If you go back to 2021, we had $200 billion of our path to advice assets that were in fee-based accounts. Today, that number is $550 billion, and because of both advisors moving more of the brokerage assets into fee-based accounts that came through path advice, and of course, market appreciation, that today is $2 billion in incremental revenue. Why does that matter? That $550, which is today's fee-based assets, that is off a base of $1.7 trillion in path to advice source. We are still only at 30%.
It is a bit of a coiled spring, because as advisors continue to deepen those relationships, more of the brokerage assets are going to move into advisory assets, and we are going to see another leg up in terms of the revenue that gets generated.
When you think about it, when does that clock start, right? Because if we just narrowly think about some of the IPO activity this year, it was really that the NNA was heavily oriented to brokerage as opposed to fee-based. Is it sort of considered starting the clock when the IPO event happened, or were the FAs already engaging with those folks?
Yeah, I gave you the average of vintages since 2021, but the clock in terms of the migration to advisory doesn't happen until they've opened up the wealth management relationship. Your point is exactly right. There's a pre-clock that starts when employees start getting shares, when we win a new workplace client, where we're dripping on them and showing what we can do on a differentiated basis and bringing unique products, and that starts the clock a little further back. What I was giving to you is the like-to-like in terms of assets that have already ended up with financial advisors that started somewhere else, and what is the migration path to fee-based.
Yep. Okay. Retirement. It seems like you guys have leaned into retirement a bit more recently. It's clearly an adjacency for stock plans. A lot of times you're selling to the same cohort within an organization. How big is that business for Morgan Stanley right now, and where do your ambitions there?
We advise today on about $750 billion of corporate retirement plans through our institutional consulting business. You're absolutely right. Over the last couple of years, we've made a couple of important investments. Number one, we've invested heavily in educational content for the plan participants. Number two, we've invested in codifying our responsibility to deliver that content as part of the contractual process with these corporate clients. Now, contractually, on a regular basis, most often it's quarterly, a number of Morgan Stanley financial advisors show up to the corporate client and deliver education for the benefit of the participants. The fact that we get those at-bats, though, has led to more discussions about not just how should I think about allocating within my 401(k), but what about the rest of my wealth that is outside my 401(k)?
That has led to an acceleration in the path to advice assets that come from retirement versus stock plan or E*TRADE. Just to put some numbers around it, if you go back to 2021, it was probably about 9% of the path to advice assets. Obviously, that number, from a denominator perspective, has grown significantly, and yet still retirement is now up to 14%. It's growing faster because we're figuring out how do we give the plan participants unique insights, unique education, and help them build relationships with folks who can ultimately help them achieve their goals.
Okay. Makes sense. Love to touch on deposits and banking a little bit. [inaudible]
Always do.
Yeah. I can't help it. I know. At least it's not like the sweep and the sorting and all that.
Well, I haven't heard the question yet.
Fair. Loan growth slowed quarter-over-quarter down to just under 3%, 2.8%. It was 5.0% in 2Q. It is still positive, it is still growing, but the pace has definitely slowed. Are you seeing that be the impact from higher rates impacting demand? Based on what we learned during the last hiking cycle, how does that inform your expectations for changes in loan demand?
Yeah. First, I wouldn't read too much in terms of Q3 rates versus Q2 growth rates, because Q2 typically is our seasonally strongest quarter because you've got LAL campaigns that help fund tax payments. If you just look at the progress year- to- date at $20 billion, that would put us on path to be one of the best years we've actually ever had, second-best year behind 2021. Rates were zero in 2021, and rates are not zero today. I think it speaks to the strength of the underlying engine, number one. Number two, if you look at Q3, we were actually above the average of the peers from a year-over-year perspective.
I think the most encouraging part of what happened in Q3 is if you look under the hood, new loan commitments were actually the exact same level as they were in Q2, and up 35% year-over-year. It is just the paydowns were elevated again because of the rate environment, and that's why the balance growth was lower. We remain incredibly constructive and optimistic about our ability to leverage lending solutions to help meet our clients' needs. Going forward, we are incredibly excited about the ability to build the business for a couple of different reasons. Number one, despite all of our growth, we're still at about 18% penetration. If you look at our peers, they're somewhere in the mid-20s. Just getting to market is another leg up of loan growth.
Number two, we're innovating from both a product perspective in areas like lending against privates, lending against digital assets, which we've been investing in, of course, but not just the product, but the process as well. I mean, think about making it really easy to click a link and start the process and get funded in 24 hours, which is what we can do in some of our accounts. Then three, obviously the firm is growing at a really fast level. We're up $1.4 trillion of assets versus 12 months ago. We're up 700,000 clients, and that is all new opportunity to bring lending solutions to help them meet their needs. Despite the rate environment, we're demonstrating that there are demands for people to borrow, and we are addressing those demands.
Got it. Got to touch on deposits, both the growth and the cost.
Be offended if you didn't.
I wouldn't want to offend you. Other deposits increased nearly 10% quarter-over-quarter in the third quarter, $318 billion, as you intentionally grew the bank, right? That did weigh on NII through mix shift. How are you thinking about continued investment in the bank and then continuing to grow those deposits, and what are the trends that you're seeing across different deposit types?
Yeah. We're obviously focused on continuing to grow the bank and on the deposits because there's demand for it on the asset side, as we just talked about, even if you look just within the four walls of the wealth management business. I think what's exciting about this year is we're deploying a much broader set of levers to take advantage of whatever is happening in the environment. We've innovated around account type, so it's not just BDP. We've got checking accounts, savings accounts, CDs, time deposits. That's one vector for us. We've innovated around promotions and marketing and how we connect to the right people in the right time. Of course, rate is also a lever, and we're optimizing based on what is best for the environment that we're sitting in at this point.
I would say the thing worth calling out, though, to your question, is the pace at which E*TRADE sweeps are being deployed back into the marketplace to take advantage of the equity volatility that we are seeing is higher than we expected. While the guidance that we gave last quarter for Q4 NII still holds, it is something that we are watching pretty closely.
Okay. That makes sense, and that is perfectly logical. Alts have been a big topic around wealth. You guys have a robust alts offering in your wealth business. I would love to touch on it in two directions. One, a bit tactical, like what inning do you think we are at in the redemption saga with all of the gating and all that? Absent an actual shoe dropping in credit, right? Because that means all bets are off, basically. Then more broadly, have the redemption gates impacted FAs' perceptions or the end investors' perception of the asset class or private assets more broadly?
Sure. To your first question, it is still in the early innings, but we are definitely off the lows. The low point for us was, even though it happened in the March timeframe, the low point for us was probably July, because there is always a lag. In October, we were triple the sales of July. By the way, it was always positive. We have never gone negative. Redemption requests we are seeing slow consistently. Our view is this was always more in the headlines than it was in the actual risk. Our asset management partners who are providing the private credit solutions are the absolute best at what they do, and we are not in a credit cycle. Things are still around the tights. This was always more headline than it was actual impact in terms of demand from clients and advisors.
As it relates to the Morgan Stanley alt story more broadly, it has been totally irrelevant. Private credit is one part of a much broader portfolio of private solutions that we deliver. Private equity, real estate, infrastructure, hedge funds, venture capital, direct investment in private shares. Our advisors are constantly rebalancing across those to help clients best take advantage of whatever cycle that we are in. You can see it because we are on pace to eclipse last year from a new sales perspective by about 40%, which is a huge number considering last year was a record as well.
That was 40% gross sales in alt products?
Correct. Higher than we did last year, and last year was a record as well. The demand for the asset class is continuing to increase.
Scale, yeah. Love to talk about PMAX. Very cool innovation. It actually came up, we had dinner last night with John Redett, who runs the equity business, and [Karl] came up during the dinner. It's basically, it's now a brand. For those not familiar, it's basically a ticket. It simplifies alts allocation, the no K-1. You don't worry about asset allocation, it's done at home office, and it's just like dropping a ticket, there's no complexity.
Yeah, the cost gets passed back to the GP, and there's 12 - 15 managers where we will rebalance. It's a very cheap, accessible way to get into alts if you don't have the portfolio to stroke a bunch of $250,000 tickets.
Right. Would love to hear about, my understanding, this was the most successful launch that you guys have ever had. I want to make sure I am remembering that correctly. What has happened to the momentum in that product? Has some of the drama that we just talked about around credit had any impact there? What is the GP feedback from the partner side?
Yes, no, yes. This is the way I would answer it. No, I appreciate it. It has been really exciting for us. The tonnage is there. We are over $1.6 billion, having just launched it last year for an evergreen alt. That is pretty quick. It is definitely one of the fastest growing products we have ever seen. But more important than the tonnage is the specific client need that it solves. Because as we have talked about before, we are at about $330 billion in terms of the size of our alts platform off of a base of advisor-led assets around $6.7 trillion, which is how we get to the kind of 5% penetration. But the clients who actually do use alts are at an 18%-20% penetration. They are actually following the advice of our GIC, our Global Investment Committee.
The key challenge for us is how do we get from zero to one, people who are not using it to using it, which is what the design goal of PMAX was. Thankfully, it has been proving out. 40% of the tickets dropped for the product are with clients who have never used alts before. 80% of them are under $10 million in total AUM, which tends to be the hardest cohort to bring into the alt space just because the platform is complicated and minimum tickets are high, et cetera. We are really pleased with the progress. We added a new version of it this year called PMAX Growth, which is more private equity focused, and we think it is going to continue to help clients get access to an asset class which is less correlated and help them achieve their goal.
To your question about the GPs, now that everyone has seen the progress and the success—
Yeah
—Everybody is interested in participating in some way, shape, or form. We are lucky to have the best asset managers in the world as our key partners to help deliver the products that fit in those various sleeves.
Got it. The 80% under 10, was that of a subset of the 40, or is that 80 for the entire 1.6?
It is 80 for the entire 1.6.
Got it. Okay. That is really interesting. It would not be a conversation with you without some kind of discussion about disruption.
You embrace it, which is great. I know you're very tech-savvy yourself. Love to start on AI. It feels to me that this has been a debate around wealth since early this year when we saw the SaaS apocalypse. The way I like to describe it is, I think of it as two vectors, right, for possible disruption. One that's sort of easier to get your head around is just around cash and whether or not the AI either automates the cash sorting or increases the awareness in order to facilitate it. To me, that feels a little neither here nor there, but whatever. That's one of the debates. The one that I think is more pernicious and possibly a bigger risk is whether or not we see a better version of Robo, right? Initially, Robo was thought of as it'll kill the brokerage business.
In reality, we realized people don't want automated solutions for this. They want to talk to an advisor. Do we see AI efficiency allowing for disruptive competitors to come in and undercut on price? To me, that I think is more serious, but I'd love to hear your views on.
Yeah, I think you touched on a lot of the important discussions that are happening right now. Why don't I start at the highest level and just give you our view, and then feel free to interrupt and probe into any of the areas.
Always do.
I know you do. Look, I think the frustration that some of us in the industry has felt as this kind of obsolescence narrative has made its way through the stock price of knowledge-based companies is the assumption is that the entire value proposition is going to be commoditized. There is some truth to that, meaning there are parts of the value proposition. In wealth management, for example, asset allocation, is there really anything that differentiated about a 60/40 portfolio? I do not know. Some people could say yes, but it is 60/40.
Yeah.
Right? Planning tools, agents are actually pretty good at running Monte Carlo simulations. The optimization piece that you talked about that does not really exist yet, but absolutely will, that is going to be commoditized as well. But particularly the larger firms have the ability to deliver things that remain unique, even in a world of LLMs and agents and blockchain and frictionless movements. For example, we talked about our role as the cap table manager for half of the unicorns in the industry, and Carta, our good partners, are the cap table manager for the other half.
When any of those firms want to source liquidity for their early investors and employees and do not want to send their data out to third parties and do not want nested SPV infrastructures that essentially take value from the company and bring it to middlemen, they can source that liquidity at Morgan Stanley, at E*TRADE, within EquityZen. You cannot prompt access to private shares. You cannot prompt access to the alts platform that we have. You cannot prompt access to getting an OCIO experience for retail clients when it is previously reserved for institutions. You cannot prompt access to facing off against one firm that can serve you as a family business across your institutional needs and across your individual needs. There are a number of things that we can deliver with our scale that are still differentiated. That would be one argument.
The second argument is the data that we deliver is differentiated, right? You said it. At $8.5 trillion, we are a couple trillion dollars larger than the next largest full-service wealth management firm globally. We have grown by $1 trillion in each of the last three years. Over the last 12 months, 21 million clients have done 1.4 billion transactions across 3 billion tax lots. The point that I am making is that for any client in any stage of their life with any investment objective and any risk tolerance, we know what good looks like. We know what is going to be the most likely thing to get them to their goals because we have seen that movie in a much bigger, more comprehensive way than anybody else. We are training our own models, we are training our own agents to deliver that. That is the second argument.
The third, of course, is client protection in this era of cyber super weapons. Just on a pure magnitude basis, we're spending a lot of money in order to ensure that we're discharging our guardianship responsibilities. Fourth, on the optimization itself, let me tell you the reason why this one, I think, is not fully thought through, but it's a great headline, is because yes, of course, agents can manage the movement of assets across multiple accounts or dozens or hundreds of accounts, but it runs counter to the objective in the first place. Because if you spread your assets across three, five, seven, 10 providers, you're not getting relationship pricing. You're not making the AUM breakpoints. You're not getting better loan terms.
You may not qualify for asset minimums to get access to differentiated product, and your risk surface goes up massively because every day money is being moved around. If you just follow the thought experiment to its logical conclusion, yields are going to be the same because if bank A has a higher yield than bank B, in a frictionless world, the assets are going to move to bank A until everything kind of settles. So yields are going to be risk-based as opposed to company-based, and then the optimal recommendation for the agents are going to be, well, you should keep it at one place where you benefit from all the other things that having your assets at a firm can deliver, and you do that in a safe way. So I actually think the optimization effort is going to lead to the big firms getting bigger.
The last argument around why Robo 2.0 isn't really going to be there, although there'll probably be some parts of the lower end of the advised value proposition that it intermediates, is that relationships are incredibly strong and incredibly deep, and financial advice remains emotional and remains personal, and it remains the second most important advice that you can get besides medical advice. Two people in the exact same situation might have very different optimal answers based on what they want for themselves and their families and their communities. While LLMs can give you really detailed answers for really detailed questions, what if you don't know the question to ask? Or what if you don't provide the right context? Or what if you meant something, but you said something else?
Remember, 95% of the wealth in this country today is held by people who are over 40 who didn't grow up telling their feelings to a chatbot. In 10 years from now, the people over 50 are going to have 85% of the wealth, but the quantum will have increased by $60 trillion over that time period. The vast majority of those folks are still going to want to talk to a human, even if an agent is doing the underlying heavy lifting. I just think the excitement about people changing years, decades, multi-generational families' behavior on a dime because there's a slick user interface is just a little bit overblown relative to all the transitions that we've seen in reality.
That said, of course, we are investing heavily in our own agentic infrastructure to make sure clients' agents can connect to our agents, our advisors have their own agents, our service folks have tools that make them more efficient, because that experience is going to be competitive, and we are investing to win there.
You said a lot there, but it is true when you—
It was a long question.
—It was a long question. Fair. But we all know from our own experience with these chatbots, if you are not asking the right question, you are not getting the right answer.
For sure. How often do you go and check another source? You are like, "That seems right," but like, "Oh, I do not know.
Yeah.
That is okay when you are looking up a fact, but when it is like, "What is the best thing for the trust structure for my kids?" You want someone who has seen 50 other trust structures, who have seen what good looks like and what bad looks like. I just think that it is all good until it becomes super personal.
Yep. You are saying I made a bad decision in using ChatGPT for the trust structure.
We will do your personal account afterwards.
I want to finish on this, and it is about scaled winners. There is a lot of debate about whether all this disruption favors incumbents versus the new disruptors. You touched on a lot of it right there. Is that because winning in the next chapter is a scale question to help investors through the transition? What are some of the biggest pieces that make you confident that Morgan Stanley is going to be able to hold its position as the leader in this space?
Well, I will start with the last piece first, which is, our strategy is very simple. We are an advice firm. We originate, manage, advise capital, and we are very deliberate in terms of what we do and what we do not do. Our view is, in the world where there is all this uncertainty, all of this disruption, all of this technology, ironically, the premium on advice goes up. It is not just advice, but it is the ability to deliver the recommendations that come from that advice. We did not talk about this, but there is a lot of discussion now about tokenization. It is incredibly difficult to build a digital wallet infrastructure that sits next to a traditional sub-custody infrastructure and do it in a way that is seamless to clients. You cannot vibe code that.
There is always this expectation that, well, if ChatGPT spits it out or Claude spits it out, then it should just be easy to do in the enterprise, which is why this whole narrative around AI productivity gains not showing up, I think, is flawed. It is just early, but we are starting to see it happen. The expectation for large firms is that they can do it in a way that protects their clients, that protects their stakeholders, that adheres with an evolving regulatory landscape, and that just takes scale to do.
When you think about trust-based relationships, when you think about distribution footprint, when you think about having the resources to be able to institutionalize a lot of the technology that has come up over the last couple years, it is just going to be really hard for fintech startups or small RIAs or even regional independents or banks to compete with firms that have the resource to invest at scale.
That's an awesome note to end on. Jed Finn, thanks a lot for your time.
Thanks for having me.