Morgan Stanley CEO Ted Pick is pushing for financial advisors to increase their clients’ exposure to alternative investments, capitalizing on the firm’s strengths and leveraging assets from its workplace advisory business to fuel growth.
Aiming for Leadership in Alternatives
While Morgan Stanley has long been a dominant player in the alternative investment sector, Pick acknowledges the firm’s advisors are underweight in this area. Speaking at a company conference on Tuesday, Pick highlighted that Morgan Stanley is the leading distributor of alternative investments (alts), sometimes surpassing competitors’ combined efforts. However, he noted, “Measured by the share of clients’ portfolios held in alternative investments, we’re not leading.”
Of the $6 trillion in total wealth management assets at Morgan Stanley, $4.7 trillion are managed by financial advisors. Yet, alternative investments like private equity and private credit account for just 5% of those portfolios. “By any mainstream allocation model, that’s underweight,” Pick said.
Pick believes that for ultra-high-net-worth clients, an allocation between 10% and 15% in alternatives is more appropriate. “We can debate whether it’s 10%, 15%, or even higher, but we are structurally underweight by $250 billion to $500 billion in alternatives,” he added.
Expanding Access to Alternatives
Morgan Stanley is addressing this gap by evolving its offerings and leveraging regulatory changes to expand access. The Securities and Exchange Commission (SEC) is reviewing a new “fund of funds” product developed by Morgan Stanley. Designed for accredited investors, this product would provide exposure to a diversified pool of alternative investments managed by top-tier professionals selected by Morgan Stanley.
This initiative underscores Morgan Stanley’s commitment to broadening access to alternatives for a wider range of investors. “It’s a fast-moving race,” Pick said. “But this is a space that will continue to grow.”
Leveraging the Wealth Funnel
Morgan Stanley’s wealth management strategy operates as a funnel, starting with self-directed clients through its E*Trade platform, moving to its workplace advisory services, and finally channeling assets to its network of 15,000 financial advisors. This funnel represents a significant growth engine for the firm.
In 2018, Morgan Stanley’s wealth business served 2.5 million households. Today, that number has grown to 20 million households. Pick emphasized the transformational nature of this growth, saying, “It’s a whole new ballgame in just seven years.”
The workplace unit, which manages employee stock ownership and benefits plans for over half the companies in the S&P 500, plays a critical role in this strategy. As employees’ wealth grows through these plans, Morgan Stanley seeks to transition suitable clients to its financial advisors. “Not all assets are meant to flow to advisors, but that’s the golden chalice,” Pick remarked.
Driving Asset Flows
Over the past five years, Morgan Stanley has successfully moved $300 billion in assets from its workplace business to financial advisor accounts. In the most recent quarter alone, $20 billion made the transition.
Pick referred to this process as “reinvestment,” noting that in favorable market conditions, reinvestment rates can reach 10% annually. “It’s not just about bringing in new assets from outside the funnel,” Pick said. “It’s about accelerating the movement of assets within the funnel towards financial advisors at the right time.”
A Clear Mandate for Advisors
For financial advisors and registered investment advisors (RIAs), the message is clear: alternative investments are a crucial area for growth. By increasing alts exposure, advisors can align more closely with mainstream portfolio allocation models, capitalize on Morgan Stanley’s extensive resources, and better serve affluent and ultra-high-net-worth clients.
The opportunity is substantial. As regulatory changes make alternatives more accessible, and Morgan Stanley’s infrastructure continues to evolve, advisors are well-positioned to take advantage of this shift. With hundreds of billions of dollars potentially underweight in alternative investments, the path forward is both clear and compelling.
