Gorman Spends Big To Reach Next-Gen Wealth

Everyone wants a piece of the millennial market.

Chairman and CEO of Morgan Stanley

As chairman and CEO of Morgan Stanley, James Gorman knows he has to adapt wealth management services to match the needs of the next generation. Morgan Stanley recently paid a stunning $900 million cash to acquire Canadian stock plan administraion software company Solium Capital, illustrating the importance—and difficulty for such old-line firms—of connecting with millennial customers.

Traditional wealth management relies on personal interactions with advisers, but this approach has been less effective with the next generation of clients—mostly still building their wealth—than it has been with Baby Boomers. “Wealth management franchises are geared toward the high end,” says Alois Pirker, research director at Aite Group. “It’s difficult for them to make profitable inroads where the asset levels are much smaller.”

A platform like Solium gives Morgan Stanley a “holding pen” of 1.5 million new potential clients, some of whom will graduate into full-service wealth management. “It’s a smart move,” says Pirker. “It gives them a feeder system for the full service, and that is the holy grail right now: how to keep relevant, not just today, but in 10 and 15 years.”

Solium’s 3,000 corporate clients have 1 million employees and include startups Stripe, Instacart and Shopify. Not only does Morgan Stanley stand to benefit from providing wealth management advice to Solium plan members, but its investment bankers can pitch capital-raising ideas to Solium’s clients.

Morgan Stanley is not the only firm looking to beef up its future wealth management potential: BlackRock’s investment in the investing app Acorns is very focused on millennials.

“It’s not just about connecting with the next generation,” Pirker says, “but changing the model around how the next generation wants to interact with you.” Morgan Stanley launched a mobile investment platform last year, and Pirker detects an incipient trend of acquisitions and partnerships between traditional wealth management providers and platforms that connect with younger generations.

“Just look at Goldman Sachs re-aunching Marcus to provide entry-level financial services: using technology to enter the space,” Pirker says. “Firms like Morgan Stanley are well advised to make their own moves before others steal that demographic away from them.”