The days of creating “respectable” profit margins via arduous cost-cutting are over, Greg Fleming, who runs Morgan Stanley’s wealth and asset management business, told attendees at the annual Reuters Global Wealth Management Summit in New York.

Fleming said he intends to splash $500 million on technology by the middle of next year, alongside three other business strategies, all of which will encourage growth through spending.

“We are driving growth and the top line rather than primarily on the expense side of the equation,” he told Reuters.

The news service said that Fleming has spent 18 months cutting training classes and other broker “perks” in a bid to boost profit margins at the firm’s retail brokerage unit.  

Morgan Stanley Wealth Management logged a pre-tax margin of 17 per cent in the first quarter of 2013, representing about 41 per cent of the firm’s total revenue.

At the conference, Fleming reportedly “declined to guarantee” that he will be able to maintain the margin through the rest of 2013. He also declined to forecast “if and when the firm will hit the 20 per cent target initially set by Gorman,” according to Reuters.   

Strategy

Fleming is prioritizing “catching up” with the likes of Bank of America Merrill Lynch and Wells Fargo’s Wells Fargo Advisors in having brokers sell mortgages, loans and other products to wealthy clients, attendees heard.

In order to do this, Morgan Stanley intends to “dip into that vast technology budget,” with the aim of making it easier for clients to open bank accounts and make transactions online and via mobile devices, Fleming said.

He acknowledged that Morgan Stanley’s net interest income from loans is “two to three times smaller than large competitors,” but added that lending has nearly doubled from an “admittedly low base two years ago” - driven by training and compensation incentives.

While some 90 per cent of Morgan Stanley’s top brokers by revenue are selling bank products, less than 10 per cent of the firm’s clients are borrowing, he is quoted as saying.

To tap this opportunity though, advisors “weaned on selling investments for commissions” should be trained to accept fees for offering advice on bank products, he said. The firm anticipates to have around $130 billion of low-cost deposits in its bank subsidiary by year-end to fund lending.

Another strategy will involve capitalizing on Smith Barney as a “master curator of funds,” Fleming explained. “We are investing to maintain our market leadership there.” Then, he continued, there is the prospect of raising money through bond and stock offerings, as well as to offer merger and acquisition advice to the businesses of its wealthy clients.

As part of the plan, Eric Benedict, formerly head of Morgan Stanley’s institutional stock sales desk, has transferred to its wealth management headquarters in Purchase, NY, bringing with him the firm’s middle-market fixed income unit.

Meanwhile, David Heaton, a former Merrill colleague who was running Morgan Stanley’s asset management investment banking deals, is now working on the wealth management side of things to manage the capital markets introductions.

While refusing to give numbers, Fleming said the firm is “already seeing nice growth in the business.”