Morgan Stanley Revs Up Proprietary CD Sales on Eve of Fed Rate Meeting
Morgan Stanley brokers can now chat up clients about parking spare cash in firm-issued certificates of deposits that provide much higher relative returns than deposit accounts at the company’s chartered banks.
The firm’s fixed-income desk added CDs issued by Morgan Stanley banks to its fixed-income order entry system for brokers on May 30, advisors are discovering. It also began selling its CDs through third-party broker dealers as of June 5.
The decision supports Morgan Stanley CEO James Gorman’s long-desired wish to bulk up the firm’s laggard position in selling loans and mortgages that can be cheaply funded through investor deposits.
Several brokers contacted said they had not been aware of the new offering because it has not been aggressively promoted through branches, but added they were relatively pleased to see that CD rates from the bank are much higher than the measly returns on cash balances swept into deposit accounts that clients often complain about.
“There’s a competition for deposits, and suddenly our own bank showed up on the [brokered CD] screen,” said a broker in the Southeast who spoke on condition of anonymity but said he had lots of retired clients chafing over low rates on their cash.
Morgan Stanley-issued CDs, which include four termed under one year, are not as aggressive as those that other upstarts such as Goldman Sachs Bank USA to fund their new retail lending efforts. But the 1.3% annual percentage yield that a Morgan Stanley 12-month CD was offering a few days ago compares favorably with the .38% 7-day yield on the MSILF Government Securities money-market fund (ticker AAPF).
Morgan Stanley’s bank deposit programs on June 13 were from 0.01% to a high of 0.02% on deposit balances above $2 million. (The firm automatically sweeps balances above $2 million into the AAPF money-market account.)
Brokers do not receive additional incentives to sell CDs (and several said they wouldn’t try to lock in customers on eve of an unexpected Federal Reserve rate rise announcement on Wednesday even if they were), but sales are factored into their regular compensation.
Morgan Stanley, to be sure, still has a long way to go to reach the goals top executives have set out for building bank deposit balances and selling securities-backed loans, mortgages and other bank products.
As of March 31, 2017, the company had $149 billion in its bank deposit program, up from around $139 billion six months earlier, according to its financial reports. Though the company has a banking services team within wealth management staffed by a small group of cash-management and bank card specialists, the number of brokerage clients who use its banking services remains low, executives have said.