Leveling up Financial Benefits in the Workplace with Brian McDonald

Jack Sharry: Everyone, thank you for joining us for this week’s edition of WealthTech on Deck. There are many interesting stories and strategies out there around wealth management and workplace stock plan retirement Asset Management and fintech. But for my money, the most interesting and effective strategy I’ve seen is what Morgan Stanley is doing. The combination and coordination of their workplace business across stock plan, retirement and financial wellness, their direct to consumer business, their asset management, business and the behemoth wealth management business is something in my view, that will be studied by Business Schools for years to come. Today, we will speak with the leader of Morgan Stanley’s workplace business, Brian McDonald joined Morgan Stanley, five and a half years ago from Schwab. As the Managing Director and Head of Morgan Stanley at Work, I’ll let him tell the story of where they are in their journey and where they hope to go. So Brian, welcome to WealthTech on Deck.

Brian McDonald: Thanks, Jack. Super nice to be here. Thank you for having me.

Jack Sharry: Our pleasure. So Brian, let’s set the table for our audience with you describing the overarching strategy of Morgan Stanley, and then we’ll get into more detail around what you’re building at Morgan Stanley at Work.

Brian McDonald: Great. Thanks, Jack. And I’ll first start with the strategy overall for wealth management at Morgan Stanley, as you mentioned earlier, we have a premier investment banking franchise, we have a premier asset management firm as well. And then, of course, the wealth management business is what we believe is one of the crown jewels of the industry. And there are really three key elements of our strategy, as I think about it, which we believe gives us a competitive advantage. One, we have access to more relationships, and we’re growing them at an extraordinary rate faster than any other wealth manager out there. In fact, I think we have 18 million individuals that we work with on a day to day basis. Now in wealth management. We’re an industry leader in almost every channel. And we like to think about that in terms of, you know, what we’re doing from a wealth management advisor led, we believe we’re number one in that category, we’re top three and self directed with the acquisition of E-trade. And we’re in the top one or two, depending on how you measure it in the workplace, which I know we’ll talk more about in a second. And then three, we think we have the best capabilities and resources within the wealth management industry, to deliver exceptional value for our clients. It’s really all about what we can do for our clients. And we want to make sure that we have, you know, an arsenal of offerings for our clients. And quite frankly, the more complex the challenge, the better. And because of the capabilities the firm has built, we really believe it’s what you like to say a standard perception of technology and advice. And it’s delivered, you know, across a multi-channel platform that really helps us retain our existing clients and continue to grow new ones. So it’s, it’s a virtuous cycle is the way we like to think about it. And to give a little bit of example, on the third part of our strategy there, we believe what differentiates us from our competitors is we have intellectual capital, our product suite and offering with the ability to do all it’s all the way down now to the self-directed investor that might just be getting started, we have a full firm suite of capabilities, we’re doing more and more around innovation, maybe you’ve seen some of our press releases. Lately, we just did a partnership deal with open AI and GPT four, where we’re going to use artificial intelligence to help our advisors deliver even better advice to our clients. And then we have the ability to support across all stages from corporate clients to individuals, we can really help in every stage of their lifecycle. And so we believe that makes us uniquely positioned and well differentiated from any of our competitors.

Jack Sharry: As I said, when we opened up to the most comprehensive that I’ve seen, and I’ve been a student of what goes on in our industry. So across the board, Morgan Stanley has been a leader. Now let’s get into the business that you oversee. So if you’d be kind enough to fill us in about what you’re doing, and building at Morgan Stanley at Work, lots going on there. So tell us about where you are in your journey.

Brian McDonald: Yeah, so I came over jack to join Morgan Stanley five and a half years ago from Charles Schwab and company where I’d spent almost 25 years as you mentioned, in the opening, it was certainly not an easy decision to leave Schwab to come to Morgan Stanley, but I had a meeting with Andy Saperstein and Jed Finn, and we began to talk about what the workplace could become for Morgan Stanley. On the wealth management side of things. There’s a heritage or legacy of the corporate workplace benefits business at Morgan Stanley both on the Morgan Stanley side and they as you might remember, from, you know, 2009, the acquisition or merger with Smith, Barney, so both firms had a history, especially in the stock plan space, as well as 401k space. And so there was a foundation that had been set, but we thought it could become bigger. In fact, we thought it could be the leading driver of new households and wealth management, and also the biggest part of the growth strategy around net new assets for many years to come. And so I got really excited to come over and be part of that, as we got started, we began to do things like building out a self-directed companion account for our stock plan clients, we had done a partnership deal with Solium, who created a software package and the stock plans base called Shareworks. And we were beginning to migrate client’s office, the legacy technology and onset Shareworks. And we were really doing pretty well at that. But at the end of the first year, I sat down with Andy and Jed, and we said. You know what, this is going really well. And we can clearly see the mosaic in front of us. But how do we get bigger, you know, how do we get bigger, faster. And so we sat down and began to have a conversation about a partnership, that was much more about bringing Solium Shareworks into the Morgan Stanley family. And we acquired Solium. You know, just after that, we did that, because it allowed us to do a couple of really unique things. Take the roadmap into our own hands in terms of how we build out the software for our clients. We brought on, you know, a great private markets business, something that we didn’t have kind of in our toolkit today. But so we brought on a leading private markets business. And then we also brought in over 900 public companies just in the US alone to be part of our stock plan strategy. In addition, over 1000 held internationally and Canada, EMEA, and also Asia Pacific. So we made that acquisition, because we felt like it would help us grow farther faster. It was a wonderful software solution. But they didn’t have wealth management. You know, it wasn’t really kind of a Path to Wealth, it was a b2b focused software strategy. And we knew that we could bring that together in our b2b and b2b to see strategy, which is really the ethos of what we’re trying to accomplish in our workplace strategy. So a year later, we also acquired Eachdraidh, the market became ripe for that opportunity to acquire a digital self-directed player. The benefit to us or the benefit to our team is that we also got to bring in a leading platform and equity edge online. And depending on how you measure it, again, either the number one or number two largest Equity Plan player in the US. And so bringing these two things, two firms together, gave us great scale, and a holistic offering for our clients to meet any of their needs, wherever they are in that corporate lifecycle journey, again, from private cap table management 409 A valuations to public companies of varying degrees of complexity. And then also a retail distribution model through the E trade self-directed account that gave us the ability to scale our companion account strategy even faster. And so we did that, you know, really with a lot of thought. And you know, some of it was just a great opportunity at the right time to bring those things together. It also allowed us to bring our advisors in to do more things like helping executives with their relationship overall, it could be advice, it could be setting up a trust, it could be just helping them write their 10 B five, one plan so that they can stay in balance with their companies trading restrictions and rule 144, etc. We are the leading player in the rule 144 and into 10 B five, one business. All in all, on the stock land side, it gave us again, as I mentioned tremendous scale, which today looks like nearly 50% of the S&P 500 using one of our equity plan platforms either share works or equity edge online. In addition to that we’ve always had a wonderful retirement plan business with over 24,000 plans that we interact with on a regular basis. The difference here, Jack is that we don’t have a record keeper that we own. We do not 401k record keeper, but we have amazing partnerships with about 14 Different record keepers, so that we can be really customized and in terms of how we help corporate clients develop their strategy to serve their client’s retirement needs. We’ve also dug deeper and established a white label relationship with vest well, which is a modern 401k record keeper. You know, I would call it beyond startup at this point, but certainly new to the space I think, you know, Aaron and team, you know quite well and then also on kind of the mid to large side of things. We have a white label relationship with Empower, again another leading provider in the space and it allows us to do all the things that we think we do really well to add a ton of value to the plan in terms of lineup and other fiduciary responsibilities, but to leverage, you know, two leading technology players as well as the additional record keepers that we work with on a regular basis to build out our retirement offering. In addition to that, if you’ve been watching, you know us at all late last year, we acquired AFS, American Financial Systems, which is a boutique non-qualified deferred compensation record keeping an administration and plan design platform. And we also bought balloon technologies, we bought the technology solutions from the company that was a direct to consumer company and hire their employees so that we could began to build out a more robust managed account solution for our 401k and retirement clients. In addition to that, we continue to think about the whole ecosystem, because for us, it’s not a siloed play, right? We’re not just focused on equity compensation, or retirement or, you know, student loan pay down and save up. I mean, we have all those capabilities with the offering that we have, but we believe it’s an ecosystem. And it’s primarily because it starts with that corporate client, if you can solve their enterprise challenges at that corporate level, using modern technology in a meaningful way, and then come alongside of them as their partner, to help educate their employees on these wonderful benefits that they’re spending billions of dollars on, if you can educate their employees to take better advantage of that, that helps them attract and retain top talent. And if you do that really well, you earn the right to work with their employees as individual wealth management clients. And that’s kind of the crux of our strategy. And as I mentioned earlier, what we’ve done over the last three to five years is we’ve now built that out so that you can start with a corporate client, where it can be for women that just started their tech startup, and they need cap table management, and maybe they need 409 evaluations. And eventually, they grow to the point where they need secondary liquidity or they do a tender offer. And then they go public. And they’re using all along the way. They’re using one of our platforms, they’re adding 401k, potentially non-qualified deferred comp. And they’re really beginning to take advantage of what we offer. And they can work with us where they’re ingesting kind of their data one time and going across multiple benefits for their employees. So we become their most trusted partner for anything related to a financial benefit. Having said that, for their individuals, we can also get started with helping again, their employees pay down student loan debt to being you kn
ow, just getting started with $5,000 investment into their ETrade account, to maybe maturing to a place where they need a little more advice, and they’re looking for a robo advisor, and then to a virtual advisor for those that are, you know, just starting to get that level of complexity where they need actual advice from a human. And then we have the best high net worth and private wealth managers in the business that are solving, you know, the needs of individuals, not only from a high net worth standpoint, but even into like a family office standpoint, as we think about founders and everyone else we serve. So we believe we’re really holistic, we’re not done yet in terms of where we want to be. But I think we’ve come a long way and in least the five and a half years. I’m exhausted.

Jack Sharry: It’s impressive what you guys have put together, I’ve been following at least certainly the headlines most every article, but what you’ve just shared with me goes well beyond how in depth I’ve tried to follow. So and when you’re undertaking is huge. It’s not only building a business from certainly through acquisition and merger, through organic growth, through connecting to existing capabilities, and on and on and on, as you described. So how’s it going in terms of building the infrastructure of a comprehensive workplace business? And then there’s all this integration to be done with the various parts of Morgan Stanley, how’s it going? And how do you find time to sleep?

Brian McDonald: Yeah, sleep is certainly a premium when I say not sleeping is the new smoking or something these days, so we definitely need our sleep. Look, the workplace is central to our wealth management growth strategy. As I mentioned earlier, we plan to be the largest source of new households and add assets, were exceptionally pleased with the investments we’ve made in the workplace today. And you know, importantly, I would say our strategy is working. And I could talk a little bit about that here in a second. But where I would start though, is when you think about building a business like we have using inorganic and organic growth levers and, and really bringing that all together, it can be quite complex, as we know, most acquisitions don’t ever really meet their fully intended target. What I would say to you in the workplace, what we’ve done, has been paying off tremendously in terms of some of the statistics we’ve seen. And one of the tough decisions I think we made early on Jack with you know, Solium and also e trade and even some of the smaller acts issues like AFS and bloom, we never ran these as separate standalone businesses, it was never our intention to have kind of a siloed Sharework’s business or a silo equity edge business or leaving AFS, independent, primarily because you can’t go culture, if you’re leaving all of these different disparate parts running in a, you know, siloed fashion. And so we have one sales team, we have one service organization, one operations organization, our product team is one team. And so that’s often hard to do. Because, you know, you come into a large firm like Morgan Stanley, and it’s, you know, you’ve done it a certain way at your old firm for for a period of time, coming in to try to be one kind of, you know, big harmonious team is certainly an aspirational goal. And not something that you get to certainly not right away. But over the last couple of years, we’ve worked through some of those challenges and our culture is, is much more strong because of that, that’s kind of on the people side of things. You have to I think bring organization together, create one team and put team before itself, in order to be able to develop the aspirational results and KPIs that that we’ve been talking about. And so as we think about the business, I’ll just talk about stock plan for a second, we’ve had approximately 350 billion and after tax bested inflows, since we’ve brought the business together over the last three years, as I mentioned earlier, our goal is to bring advisors together with technology. And we’ve had 150 billion in the last three years of net new assets, advice, assets that originated from workplace relationships. And so we’re proud of that, but if I’d kind of just play it forward and go real time, you know, James Gorman, on the recent earnings call announced that we did 28 billion and net new assets to advise conversion from our workplace participants in Q1 of this year, more than doubling what we did last year, and q1 alone. And so we feel like the strategy is starting to take momentum. What I get excited about there is less about the big numbers, and more about how many individuals are helping live a better financial life, whether that’s saving for retirement, saving for a second home, getting out of debt, saving for their college education for their kids, whether it’s college or beyond. That’s what I get really excited. We’re helping individuals succeed and, and that’s why I get up every day. And I think that’s what my team is most focused on.

Jack Sharry: So Brian, one of our podcast guests recently is Chip Roame, who runs the Tiburon CEO Summit. And one of things he talked about his podcast will be up probably just surely ahead of yours. When that hits, probably sometime in May, possibly June, he said the four fastest growing firms in terms of net new assets are Schwab fidelity, Morgan, Stanley, and Vanguard. So who stands out in that list, of course, you would expect Schwab Fidelity and Vanguard to be on the list. For those not paying close attention. They might have missed the fact that Morgan Stanley’s on that list. Kudos to you all. And I’m I’m getting a deeper understanding a richer, understanding what you all are doing, because I know how it works on the wealth management side, but I’m seeing it’s working on the workplace that as well. Really, what you are is you’re an asset gathering machine, that given all the capabilities that you’re describing, and all the ways that you’re touching the marketplace. And, frankly, for my money. I know you guys think the same. You’re just getting started. I mean, you’re just kind of putting it all together and look at all the tremendous success. I just want to add that comment that just to underscore that, as you’re describing what you’re doing, the proof is in the numbers that that more money is coming in to Morgan Stanley, and I’m not sure that chip share this as a specific number, but seemed like in terms of the just the momentum that you guys are leading the way in terms of growth percentage, so you’re rockin’ so congratulations on that.

Brian McDonald: Thanks for saying that, Jack. We certainly watch all three of those competitors that you talk about, I for one can’t help but watch Charles Schwab and company to Azure ratio friends and colleagues from there. So there’s the lifeblood of the Schwab strategy and continues to be to gather assets and serve more clients. We’re certainly doing that incredibly well. And Morgan Stanley, and I would agree with you that we have momentum and continue to gain momentum. And so you should look for us to continue to keep our foot on the gas, again, and we could talk about the KPIs but it’s really about serving clients. And that puts us in a great place and deepening relationships with the existing clients we have. And so our advisors are, you know, great at working with their individual retail clients. They’re also skilled and understanding the workplace and, you know, that’s helping us, you know, create some of that momentum. It’s kind of a multiplier effects. And then the last thing I would say is, of course, Vanguard and fidelity are, are super great companies that we respect and we think about fidelity a lot because of the workplace. And as you know, you know, the largest install base of 401 ks and in the business and they’re always going to have Our relationship with the best and largest companies in the US. And so there’s certainly a competitor for us to continue to watch and continue to differentiate ourselves so that the choice is easy to work with Morgan Stanley apart.

Jack Sharry: Sure. But you know, there’s more. So you’ve, you’ve only just begun to describe what you’re doing. I know you have more to share today. So what do we get to that?

Brian McDonald: Yeah, maybe I’ll touch on a few different things, some that we, you know, announced recently, as I mentioned earlier, one of the surprising opportunities we had when we acquired Solium is the private markets business had sold and it’s one of the largest cap table providers and really one of the largest ecosystem players in private markets today, the value of that is we get to start, you know, with corporate clients much earlier in their lifecycle, and help them kind of build their business and grow with them throughout those stages. And we recently launched a private market secondaries trading desk. So one of the things that we found for corporate clients is they are looking for more ways to create liquidity for their clients. In fact, private market clients are staying private for on average, about 12 years now, which used to be like two or three years, you know, just 10 years ago. And so because of that, they still have to attract and retain talent. And one way you need to do that is to be able to provide liquidity to those employees that you have on staff as well as to your investors. And so we have one of the largest tender offer businesses in the industry, as well as the ability now to do secondary trading. For corporate clients, we’re super issuer focused, meaning that we do everything in partnership with the issuer, but where they need to help create some liquidity for individuals, whether it’s founders or other employees, we can now help them do that by being able to provide the software solutions, but also help them if they are looking for buyers on the other side of that, so investors to come in to be part of their story. And so we launched the private market, secondary trading desk just recently, and we’re going to continue to build on that platform. We also introduces something called a directed share platform, and allows us to work with corporate clients as they go public, they often want to bring friends and family and others and to the ability to buy their shares before the IPO. And so we had a chance with the E trade account model and the self-directed brokerage solutions that they created to create a platform that scales tremendously, we can now help companies of all size to hundreds of 1000s of potential individuals that they want to bring into their direct share program, we can do that at scale. And it certainly adds a lot of value as they’re going through that process. And then I’ll just touch quickly on a couple that I mentioned earlier, expect us to be a much bigger player in the managed account solutions, business in the 401k space with the acquisition of the bloom technology, we’ll continue to build out that story. And also shows you and Chris will love me for saying this. But you know, technology is being created and other great places that then just the Bay Area, you know, Bloom was in Kansas City, Missouri. And so we’re so delighted to have those individuals as part of our team. And then the deferred comp space is something that’s great for us. We’ve been watching this for a couple of years now, we made an acquisition of AFS for American financial systems, primarily because they were boutique-ish and allow us to kind of fit our model. And one of the things that’s interesting Jack is we thought this was just a retirement opportunity where you have not called Deferred Comp along with retirement, that many of our stock plan clients are asking for deferred comp solutions as well. And so it really fits across the platform, as we began to help executives of all sizes.

Jack Sharry: Well, this has been frankly, dazzling. And we, for our listeners, we have a little bit more. So hang in there with us, folks, you guys are cooking for sure. So putting on my marketing hat would be it would seem safe to say that what you’re offering is beyond retirement. So you’re certainly done a fabulous job, that traditional retirement sense, so much more in the stock plan and so forth, really covering the waterfront. So it’s been phenomenal. I really my hat is off to you. What I’d like to do now switch over to talk about where the industry is headed and the role you see Morgan Stanley playing at this point in the evolution. So what’s next for you guys? What are some of the things you have on your mind?

Brian McDonald: Well, I love your marketing hat and we can always use marketing help. So after this call, or if you ever want to come join us, we’d love to have your big brain.

Jack Sharry: I love a good story and you’ve got one. So please proceed.

Brian McDonald: It’s certainly beyond retirement and you know, retirement is at the center of everything that we do from helping individual investors prepare for that, that stage of life but you know, life is so much complex and the needs of individuals happen and various life cycles along the way. And one of the reason we made such a decision to go after the equity compensation space is because we felt like it was the perfect area where individuals need technology as well as corporations. And that’s the Plex software solutions that we offer. But it’s also a big area of advice. And it happens annually, or quarterly, or sometimes even monthly Jack, as individuals have vesting events happen, they have options expiring, they have performance grants, they have all of these things that are super complex and hard for them to understand. And so for us, it was never a opportunity to just provide software alone, but to bring in the market wisdom and the intellectual capital from the advisors that we have on the Morgan Stanley platform. And so yeah, it goes beyond retirement because we believe life’s complexity goes beyond retirement. And one thing that we like to say here at Morgan Stanley at work is more wealth is being created in the workplace than anywhere else. And so every day, individuals are looking at their statements and trying to understand how to plan their next stage of life and we can be be helpful there and add the value that they’re looking for. But, you know, macro-economic overall, it’s been really tough. As you’ve seen, 2022 was tough, it’s certainly tough when you saw 2021 IPO market, do what it did, and then the last year and a half have not looked so great, because of the instability that’s out there. When that happens, it creates a dialogue, because employees are looking for more from their employer first. And then from the partners that their employer chooses, like Morgan Stanley, in terms of how to prevent, provide the advice, they need to be able to manage their financial life, you know, real time, the volatility makes it incredibly hard. And, you know, we’re going to launch here in May, our Morgan Stanley work third annual State of the workplace study. And so I’d be happy to send that to you when it actually comes out. But one of the findings that came out of there is that 89% of employees agree they’d be more invested in staying at their company for longer if they provided the right financial benefits to meet their needs. And then, you know, also we interviewed HR staff, and they said 90% of them said, they’re worried that their employees will leave if they don’t provide the right benefits. So the good news is you have employees saying we need help. And if you give us the right benefits, then we’ll stay. And you have HR professionals saying we need to give more of these financial benefits to be able to serve the needs of our employees. And so we think those two things, the need, and certainly the interest from the HR staff is aligned. And then I would just say more holistically the workplace is a key story to watch. Over the next five years and wealth management, I don’t think we’re the only ones that we believe were out ahead and leading with momentum, as you mentioned earlier, but I think you should expect that there will be more competition, which is better for participants better for employees, as you know, it helps to bring about more opportunity to help them with their financial lives. And we certainly, you know, work with great partners like LifeYield, where we’re using your tool sets inside of what we’re doing to be able to provide more for the employees of these firms. And so, you know, this isn’t just everything we build ourselves and or even acquire, but it’s how we partner with firms like you in order to do more for individuals.

Jack Sharry: We’re thrilled to work with you guys. It’s a blast, you guys are doing all the right stuff on both the workplace side and the wealth side. Who doesn’t love a great story when especially it’s working out as well as it is? So as we look to start to wrap up here, what are three key takeaways you’d like to share with our audience?

Brian McDonald: Well, I’m gonna talk my own book a little bit Jack. But the workplace, as I mentioned a few seconds ago is the key story to watch over the next five years and wealth management and the industry at large and certainly within Morgan Stanley. You know, it’s, as I mentioned, the single most important source of wealth creation is coming through the workplace. The second one Jack is the employee views of the workplace that have evolved, it’s not just, you know, 401k. And that’s all that you’re providing for me, but it’s a whole set of solutions that employers are providing, and therefore, employees are looking to their employer to provide more help and guidance along the way. And then the third thing again, Morgan Stanley, and the At Work business is uniquely positioned based upon what we’ve been able to assemble from an ecosystem standpoint, working with best in class technology, with the world’s best advisors, you know, bringing those two things together. We believe it’s the right recipe to help employers and employees not only in the US, but across the globe.

Jack Sharry: So Brian, it’s been a real pleasure to spend this time with you bravo to you and all your colleagues, I know, there’s a whole lot of folks that stand with you. And not only in the workplace side, but the wealth side. And it’s just fun to watch. And you guys are just doing it. All right, and I look forward to seeing much more. So now for my favorite question, something we asked each of our guests at this point in the podcast before we close out, what do you do outside of work that you’re excited or passionate about, that people might find interesting or surprising?

Brian McDonald: Yeah, so I live in Denver, Colorado, Jack. So I am avid in the mountains, but not really good at skiing or snowboarding. But I just switched from snowboarding to skiing this past season. And I thought it would be an easy crossover and it’s proven to be not that easy. And I’ve got the bumps and bruises to show for it. But since we’re you know, in early May is tennis season, and that’s certainly something I love to do. You know, I try to stay active. I wish I was a little better at tennis but it’s one of those sports as an adult you can get better as you age, not like pickup basketball for some reason. I I’m very good pickup basketball player. And then lastly, I would just say one thing that I’m really excited about for the summer is I’m going on a hiking trip in the San Juan Mountains. And we’re going seven days from heart to heart with you know, no cell phones, get a pack your own food, it should be really kind of resetting from a mental standpoint. So I’m excited about that. And I’m sure it’s gonna be beautiful. The only caveat to that one is I’m going with my wife and her three siblings and their spouses. So we’ll see how we get through that.

Jack Sharry: We’re still talking about yet. That’s great, Brian. Thank you. This has been just fabulous. Really enjoyed our conversation for audience. If you’ve enjoyed our podcast, please rate review, subscribe and share what we’re doing here at WealthTech on Deck. We’re available wherever you get your podcasts.

Brian McDonald: Right again, this has been a real pleasure. I really enjoyed it. Thanks, Jack.