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Morgan Stanley

Power Score: 87.85

Momentum Score: 57.65 (8)

HQ: New York, NY

CEO: James P. Gorman

On Power

Though Morgan Stanley had some self-directed trading capabilities in the past, it moved into a true position of power with a big, vertically-integrated bang. When the company agreed to acquire E-Trade for around $13 billion in February 2020, the Wall Street mainstay vastly expanded its wealth management portfolio and signaled to the industry that its Main Street foray was not temporary. When the deal closed in October 2020, Morgan Stanley added E-Trade's 5.2 million accounts to the existing 3 million accounts active under its advisory umbrella, giving the combined entity the resources to reshape itself to take on the commission-free trading apps that had disrupted the original business model in the first place.

While acquiring accounts at scale is an effective way to gain immediate market share, the Morgan Stanley deal is noteworthy because of the company's investment banking roots and the " funnel " into other wealth management products that it has now established. Morgan Stanley's already strong balance sheet also benefits from another capital-light business line that can serve as a gateway to the rest of its financial services arsenal.

But the benefits to Morgan Stanley are only as good as E-Trade is attractive to the mom-and-pop investors that it's been courting since it became synonymous with the '90s boom in internet stocks and went public in 1996. With Robinhood popularizing commission-free trading in the late 2010s, E-Trade felt pressure to shift away from commissions revenue, which had been its backbone since it was receiving an average commission of $19.62 per transaction in 1998. In 2019 — on the heels of similar announcements from Charles Schwab and TD Ameritrade — E-Trade announced that it would no longer charge customers for U.S.-listed stocks, ETF and options trades. E-Trade still showed signs of trouble that year, as growth slowed for key metrics such as net new accounts, end period retail accounts and daily average revenue trades. Now, with an expanded purpose and a wealth of Wall Street resources, E-Trade will look to reinvent itself again as a top dog in the industry.

On Disruption

E-Trade scored well in the Product & Innovation category, but its product side did most of the heavy lifting (in particular, it excelled in assets under management). The company's recent history tells a story of a company being on the wrong end of disruption. Even as it looks to turn things around, E-Trade has been slow to launch new products and services. For instance, E-Trade still only has limited crypto functionality . This could reflect a limited appetite for Morgan Stanley to wade into some of the murkier regulatory waters.

Tea Leaves

As Morgan Stanley looks to further expand its capital-light business line, expect it to continue searching for acquisition targets in the consumer investment space. After it agreed to buy E-Trade, Morgan Stanley agreed to buy investment management firm Eaton Vance for $7 billion. "Historically the only way we were able to attract clients through our advisory platform was through the advisors themselves, who were obviously limited in how many prospects they could realistically generate and cultivate given that they also have a book of clients to serve," head of Morgan Stanley Wealth Management Andy Saperstein said in an interview , adding that E-Trade allowed the company to source new client relationships in a different way.

One of the missing parts of this portfolio? A product that's popular among the youngest, transaction-heavy cohort of investors. E-Trade is currently the topmost level of Morgan Stanley's funnel, but it still goes after a higher-net worth crowd relative to trading apps like Trade Republic and Robinhood . The new platforms come with risk that Morgan Stanley might not be willing to take on right now, but that could change as the regulatory picture becomes clearer.

They Said It

"People don't think of it this way, but I think we've done the biggest move in technology of any of the large banks, maybe in the world, by spending $13 billion on a technology company, called E-Trade, which is basically technology and brand." — Morgan Stanley CEO James Gorman in a July 2021 earnings call

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