Bank of America (BAC) and Morgan Stanley (MS) are trying to revive their business by focusing on a less-lucrative side of wealth management- employee benefits. The two lending giants will expand their employee benefit services.
Will the two banks clash?
Morgan Stanley and Bank of America are two of the largest wealth management firms in the USA, and they have recently shifted their focus to employee benefits management. However, the two banks are focusing on different sectors in the business which reduces the chances of a clash. Interestingly, their target audience is still the same. They want to market their services to middle-class and younger clients.
Morgan Stanley is focusing on Solium Capital, which it bought for a whopping $850 million. The company is already managing employee stock plans for over 2.7 million employees of 3,400 companies. Solium Capital is now being rebranded as Shareworks and will now provide student loan refinancing options, health savings accounts, and deferred compensation management options as well. It may also want to look into a workable partnership with a payroll management company to expand its offerings.
Bank of America has a different strategy. It aims to work on retirement services with its health service accounts and 401(k) accounts in hopes of bringing big business. It is covering accounts for over 5 million people employed at over 30,000 companies. In 2017, it was ranked the 10th largest record-keeper of assets in 401(k), but in 2018, it jumped to the seventh spot.
A shift in strategy
Both the banks have previously only focused on older customers and wealthier families, but now they want to shift their strategies towards younger workers and their families. They want to establish banking relationships with them sooner so they can develop wealth management relationships later.
However, Morgan Stanley and Bank of America are not the only banks rethinking their existing strategies. Fee-driven business activities have failed to deliver for banks in recent times, and trading revenue has experienced a steep decline since the financial crisis hit the US a decade ago. TIAA, Vanguard, and Fidelity have already upped the ante with their employee-benefit severances. Even E*TRADE and Charles Schwab now manage large stock plan services. Not, only that investors have got smart and are using Robo Advisors to reduce costs.
With retirement products not being prone to as many changes and with companies only thinking about changing their banks once a decade, the lending giants can finally get a longer-term revenue. However, analysts are unsure if Morgan Stanley and Bank of America will be able to create sustainable business models for their employee benefits business.