June 17, 2014 / 10:12 AM / 3 years ago

Morgan Stanley's Fleming eyes fee-based account growth

Gregory Fleming, president of Morgan Stanley Wealth Management and Morgan Stanley Investment Management, speaks during the Reuters Global Wealth Management Summit in New York June 16, 2014.Brendan McDermid

New York (Reuters) - (For other news from the Reuters Global Wealth Management Summit, click here)

Morgan Stanley Wealth Management (MS.N), which is poised to become the largest brokerage in the United States by assets, sees fee-based accounts making up 40 percent of all the money it invests for clients, its top executive said.

Gregory Fleming, who runs the bank's brokerage arm as president of Morgan Stanley Wealth Management, said at the Reuters Global Wealth Management Summit so-called advisory assets are growing at a healthy pace and that they could make up as much as 40 percent of overall assets in the future.

The number, which has not been made public before, underscores both the bank's growth in wealth management plus a shift into fee-based accounts from accounts where clients pay for every transaction.

"If we continue to experience growth as we have seen, then we could see advisory assets swell to $900 billion or $1 trillion over time," Fleming said, adding that with overall wealth management assets to top $2 trillion in the near future and set to keep rising, advisory assets could be 40 percent.

In the first quarter, Morgan Stanley's fee-based accounts represented 37 percent of assets under management, up from 35 percent in the first quarter of 2013.

Fleming emphasized that 40 percent was their forecast, but the level could end up being higher over time. He said the split between fee-based accounts and transaction-based accounts will depend on what markets do and what clients want, and that he was not expressing a preference for one over the other.

"A lot of our advisors do both," he said, adding that the bank will provide services to dovetail with the client's needs.

At the end of the first quarter total client assets stood at $1.94 trillion with fee-based assets having grown 17 percent to $724 billion. During the quarter Fleming said the bank saw $19 billion in inflows into fee-based accounts.

The numbers put Morgan Stanley very close to overtaking Merrill Lynch, which oversees $1.95 trillion in client assets.

Passing the rival could be an especially sweet moment for Fleming who had been president at Merrill Lynch but left in 2009 after the bank was acquired by Bank of America Corp (BAC.N). He joined Morgan Stanley in 2010.

Morgan Stanley already employs more financial advisers, counting 16,400 compared with Merrill Lynch which had 13,700.

But Merrill Lynch's wealth management group already earns 41.7 percent of revenue from fee-based accounts.

In the interview Fleming said Morgan Stanley's financial advisers are now significantly happier than they were two years ago when the company last conducted its employee survey. He said far fewer financial advisers are leaving for other firms and that improved technology helped boost morale.

"You can now send pictures of the front and back of a check on your iPhone," he said, allowing clients to deposit checks by phone.

Additional reporting by Jed Horowitz; Editing by Lisa Shumaker and Meredith Mazzilli

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