Bank of America, Morgan Stanley Eye Growth in Employee Benefits Management

NEW YORK (Reuters) – Morgan Stanley ( MS.N ) and Bank of America Corp ( BAC.N ) expand the services-benefit services they offer, hoping to get market shares in the tedious but reliable business of managing the assets of companies and employees.

FILE PHOTO: A sign appears in the Morgan Stanley building in New York US, July 16, 2018. REUTERS / Lucas Jackson

The banks, which operate the two largest US wealth management companies, are focused on different parts of the business benefits, leaders for Reuters. But both strategies create opportunities for companies to market to younger and middle-class customers.

Morgan Stanley builds on its $ 850 million acquisition of Solium Capital, which manages stock plans for some 3,400 companies and 2.7 million employees.

Morgan Stanley has renamed Shareworks and is looking to roll out deferred compensation management, health savings accounts and student loan refinancing. The company is also considering working with a payroll company.

Meanwhile, Bank of America has focused on retirement services, with significant growth in its 401 (k) s and healthcare accounts.

The bank now manages plans for around 30,000 companies covering 5 million people. It was ranked # 7 on's annual list of 401 (k) journalists by assets last year, three notches higher than in 2017.

The two banks typically have access to older, wealthy families. By providing welfare services to companies, they hope to establish relationships with young workers who can develop into one-to-one wealth management relationships later.

The investments Morgan Stanley and Bank of America make in workplace benefits reflect the global banking industry's shift towards increasingly tax-driven businesses to offset a secular decline in trading revenues since the 2007-2009 financial crisis.

However, the business has become more competitive in recent years. Fidelity, Vanguard and TIAA are regularly ranked as the top three employee benefits providers, and Charles Schwab Corp ( SCHW.N ) and E * Trade Financial Corp ( ETFC.O ) has significant stock plan companies.

Companies only consider switching financial institutions about once a decade, and pension products are fairly standardized, which provides little incentive to switch.

Combined with a pressure to reduce investor fees and the huge cost of running an employee-benefits operation in scope, Morgan Stanley and Bank of America can be difficult to succeed, analysts say.

"This is a very tax-sensitive industry," said Anastasia Krymkowski, associate director of the Cerulli Associates research firm that specializes in retirement. "It's an even bigger deal in 401 (k) plan management because you have this idea of ​​being a good trustee."


Nevertheless, managers in the two banks told Reuters in separate interviews that they see the opportunity to increase revenue and gain customers through these businesses.

Bank of America believes it can retrieve customers left by JPMorgan Chase & Co ( JPM.N ) and Wells Fargo & Co ( WFC.N ), both of which joined 401 (k) business in recent years.

And Morgan Stanley bought the most popular employee stock management software platform, making it difficult for competitors to compete.

Morgan Stanley has added 200 new corporate customers since the acquisition and estimates that employees on Shareworks platform have a total of $ 1.5 trillion in other accounts.

Managers predict that over the next decade, they can turn hundreds of thousands of employees into customers of the company's robotic advisor or its full-service brokerage.

"It creates value for the employer, the employee and creates a new source of potential customers for us," said Jed Finn, CEO of Morgan Stanley's wealth unit.

Analysts said that Shareworks earnings will be minimal in the short term, but can later create significant business.

Bank of America's strategy to market a complete package of employee benefits, including 401 (k), stock compensation plans and health savings accounts, to existing customers in other parts of the bank is also making money now.

Bank of America added nearly 3,000 corporate customers to its institutional pension business in 2018, up about 50% from a year earlier. So far this year it has added another 2,190 of them. It includes 401 (k) s, HSAs, employee shares and defined benefit plans.

"The large amount of profits comes from existing customers," said Alastair Borthwick, Bank of America's global head of commercial banking.

Still, only about 10% of Bank of America's corporate customers use their pension services, which gives the bank an opportunity, Borthwick said. The institutional retirement business hires several pension specialists to help these products.

"Getting a company to turn on a 401 (k) or stock plan administration takes time," said Glenn Schorr, an analyst at Evercore ISI. "The good news is that they already have relationships with their target market customers, and now it's up to them to convince them."

Reporting by Elizabeth Dilts and Imani Moise in New York Editing by Lauren Tara LaCapra and Cynthia Osterman

Our Standards: Thomson Reuters Trust Principles.

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