Morgan Stanley New York headquarters building
Rich Brown and Christian Maguire are financial advisors (FAs) for Morgan Stanley in the New York City area. In addition to directly helping clients with wealth management issues, they also head a team—the Franklin Avenue Group—consisting of ten FAs and support staff. Both are credentialed as Certified Financial Planners and have been at Morgan Stanley for many years. Morgan Stanley is the world’s largest wealth management firm and has almost 16,000 FAs, 60,000 employees, and operations in 42 countries. FAs work for the firm’s Wealth Management business, but Morgan Stanley also has investment banking, investment management, commercial banking and other businesses.
In 2018, Morgan Stanley rolled out a new capability to its FAs to aid them in their work with clients. Called Next Best Action (NBA), the system is both a platform for personalized communication and engagement with clients, and an AI-based recommendation engine for investment and wealth management ideas that FAs can present to their clients. The NBA system, if used correctly, has the potential to significantly change the ways FAs work with their clients and do their jobs. Usage of the system is voluntary, but some individuals and teams—including Maguire, Brown, and the Franklin Avenue Group—are seeing very positive impacts from extensive usage. In the 2020 COVID-19 pandemic, the system became even more important for the Wealth Management business when face-to-face meetings between advisors and clients were impossible. In the first two months of the pandemic, the NBA system was used over 11 million times.
What Effective Financial Advisors Do
There are a variety of different approaches that FAs take to working with their clients. The traditional approach is to offer transactional investing, recommending particular securities (individual stocks or bonds, or alternative investments) to clients. It is more common recently—in part as commissions on securities transactions have fallen throughout the industry—to take an advisory-oriented wealth management approach to client relationships. As Rich Brown’s LinkedIn page describes his job:
“His group focuses on providing comprehensive wealth management solutions to entrepreneurs and their families. Together with his experienced team, he helps affluent clients address their five biggest concerns: preserving their wealth, mitigating taxes, taking care of their heirs, helping to ensure their assets are not unjustly taken, and charitable giving.”
Brown and Maguire are both oriented to wealth management, although some of the FAs on their team tend to be somewhat more transactional in their investment recommendations. Wealth managers are less likely to recommend individual securities, and more likely to advocate the buying and longer-term holding of model portfolios, mutual funds, ETFs, tax-efficient investments like municipal bonds. They typically develop financial plans for their clients to help them achieve their long-term goals—often retirement-oriented. They may also assist clients with their estate plans and help them to establish trusts for their heirs.
Jeff McMillan, Morgan Stanley Wealth Management’s Chief Analytics and Data Officer, led the development of the NBA system and manages data on the Wealth Management unit’s performance. He noted that there is one primary factor in the success of FAs:
“There are a lot of different theories about what makes financial advisors successful: organizing in teams or working as an individual, doing financial plans for clients or not, wealth management or transactional focus. Our data suggest that any of these approaches can work. However, there is one clear way not to be successful—not engaging with your client. Whatever else you do, you have to do that well and you have to do it at scale.”
Engaging with clients entails having frequent, relevant, and trustworthy communications with them. But communicating frequently and ensuring relevance have historically been time-consuming for FAs. With the average number of clients per FA at about 200, FAs need to combine engagement with efficiency. Fortunately, that’s just what the NBA system offers them.
How the Franklin Avenue Group Uses the NBA System
Brown and Maguire say they use the NBA system for “a lot of different things.” Some involve routine communications—birthday greetings, holiday messages, passage of the SECURE Act by the U.S. Congress, etc. The system makes it easy to specify message filters, so storm warnings, for example, can be sent only to certain zip codes. The messaging is very efficient; the group has about 1800 clients, and a typical message can be tailored and sent out in about ten minutes. All communications can include highly personalized content. For example, if there is a major stock market decline, the automatically-sent message can include the specific impact on the client’s portfolio.
In addition to semi-generic messages to clients, the NBA system also recommends a set of investment ideas that FAs can send to clients—“ideas to engage,” it calls them. There might be twenty or so possible ideas to send to clients in a particular day, but FAs decide whether to send them. They might, for example, tell a client with a particular bond that it has been downgraded, and recommend an alternative. It might also say that a client has just added $100,000 to their account, and to contact them to discuss ideas for investing it. If a mutual fund or ETF has a change in management, the system might suggest contacting the client to discuss whether to stay with the fund. Near the end of the tax year, it might suggest some tax loss harvesting opportunities to suggest to the client. In this context, the NBA system is used to transition a client to a more actively-managed portfolio.
The NBA system also makes recommendations on the risk level and issues within a portfolio, based on a partnership with BlackRock and its Aladdin Wealth risk management system. It screens client portfolios for various types of risk on an ongoing basis. If Aladdin discovers a high level of risk, the client is notified and encouraged to discuss it with the FA.
Brown and Maguire note that the NBA system may alert clients of a particular issue, but that often is not what the client calls to discuss:
“It makes them remember that they wanted to talk to us about something else. The system has greatly increased the number of inbound client calls, and the topics they want to discuss often have nothing to do with the outbound message we sent them.”
As McMillan describes the system:
“We have a very sophisticated machine learning algorithm to identify topics of interest to clients. But in the end financial advising is a human-based game. If all the system does is remind them that the advisor is there and looking out for them, that is often enough.”
The system has made the Franklin Avenue Group much more efficient. The group’s goal is to contact the client every 30 to 90 days, and the NBA system makes personalized client contact much easier. Freeing up the FAs from routine communications means that they have more time to meet with clients—for example, in two-hour planning sessions. Further, the group doesn’t have to hire staff to handle communications; Brown and Maguire handle messaging for the entire team.
Jeff McMillan says that Morgan Stanley’s data shows a definite increase in FA productivity.
“It used to take about 45 minutes to come up with a personalized investment idea for a client; now it’s instantaneous. So clearly clients are seeing many more of those from us. We’re also measuring 5 to 6 more outbound calls per day since NBA was implemented, and many more inbound ones.”
How the NBA System Is Changing the FA Role
Brown and Maguire admit that not everybody is equally comfortable with the system. They said that some older FAs don’t use it as much, and sometimes wonder why they are receiving a lot of inbound calls. They could monitor what outbound messages go out, but they may not do so. Older Financial Advisors are also more likely to take an individual security, transaction-based relationship with clients. The NBA system supports that approach as well, but Brown and Maguire prefer a more advisory wealth management approach.
Brown and Maguire said that they personally try to be early adopters of new technologies, and the NBA system is no exception. The FAs on their team who do best with the system are similar to them in their embrace of technology. The best use of the system also requires FAs to gather information about their clients’ preferences, family, and hobbies—again, an investment in the relationship focus. Brown and Maguire agree that the aggressive users of NBA on the team are more likely to build scale—more client relationships and more assets under management—and be more effective. For example, if they understand how the system works, they can track whether a client has opened an email with an investment idea. If the client doesn’t open the message, they know that they need to make an outbound call. They call also look at the machine learning-generated scores to see how likely a particular investment idea is to appeal to a particular client.
Jeff McMillan, the Morgan Stanley Wealth Management Chief Analytics and Data Officer, said that their analyses suggest that the FA job is changing:
“The industry is changing and the focus on investing alone is no longer sufficient to drive client satisfaction. We need to expand the value that FAs can provide their clients and offer advice to clients on things like where to find support for their parents’ long-term healthcare needs, and how to pay for it. The ultimate goal is in building and maintaining a trust-based relationship with that individual. In healthcare, you care about the quality of the hospital, but it’s usually the engagement with your doctor that determines your satisfaction. It’s the same in wealth management. We are trying to empower FAs on how they can use the new tools to build those relationships, grow their business and be more successful.”
It’s common in wealth management circles to mention the need for a “trusted advisor,” but that attribute was historically based on personal characteristics alone. Morgan Stanley believes that a trusting relationship also involves expectations of bringing the best possible investment advice to clients based on data and advanced analytics. The best financial advisors of the future will have the best personal relationships as well as the best data-driven advice—not only about financial investments, but about life.