Amid AI boom, Morgan Stanley leans into role of its people

• Key insight: Morgan Stanley is open to AI tools and products, but at the end of the day, it's focused on being a trusted advisor to its clients, including in wealth management.
  
• Expert quote: "It's a people business." —CEO Ted Pick, referring to wealth management

Morgan Stanley says it's taking a measured approach to the risks and opportunities associated with the booming AI ecosystem, participating as a lender of capital for the build-out and deploying the technology internally as a means to achieve greater scale, productivity and efficiency.
But the global investment bank is also leaning heavily into its role as an advisor whose knowledge and expertise, in areas such as wealth management, would be hard to replicate with an AI agent, CEO Ted Pick told analysts Wednesday.

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"It's a people business," Pick said during the firm's third-quarter earnings call. While AI can "do a lot of the early work" in preparing clients to make certain financial decisions, it ultimately "comes down to, do I trust my financial advisor?"

The impact of AI has been a major theme across the first two days of the banking industry's third-quarter earnings season. On Tuesday, JPMorganChase's chief financial officer warned that the rise of AI agents could intensify competition for deposits and customer relationships. The same day, Goldman Sachs CEO David Solomon urged governments and technology firms to establish stronger safeguards to protect against dangers such as credit risks and rogue AI bots.

Pick's comments on Wednesday struck a relatively optimistic tone, focusing on how Morgan Stanley is best positioned to benefit from the ongoing acceleration in AI development. The bank's wealth-management business was an early adopter of AI services, and it has worked with OpenAI since at least 2023, launching generative AI tools for financial advisors.

Solid quarterly results

Talk of AI followed a strong quarter for Morgan Stanley, which reported net revenues of $20.3 billion for the period ending Sept. 30, up from $18.2 billion in the year-ago quarter. Net income was $4.9 billion, up 6.5% year over year, and earnings per share totaled $3.03, exceeding the estimate of $2.92 that analysts polled by S&P Capital IQ had predicted.  

Expenses for compensation and benefits were nearly $8 billion, up 7% year over year. Non-compensation-related expenses were $5.7 billion, rising 20% from the year-ago quarter due to double-digit increases in areas such as brokerage, clearing and exchange fees as well as marketing and business development costs.

Wealth management, one of Morgan Stanley's three core businesses, had record quarterly revenues of $9.1 billion. Its net new assets soared to $232 billion, up 187% from the same quarter last year and driven in part by flows from initial public offerings. Morgan Stanley was one of the banks that supported Space X's IPO in June. The bank's fee-based asset flows came in at $80.5 billion for the quarter, nearly double the total from the year-ago period.

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Another core business, institutional securities, reported net revenue of $10 billion, an increase of 17.7% year over year, while the third business, investment management, saw net revenue decline by 11.6% to $1.5 billion. The year-over-year drop was attributed to a reversal of accrued carried interest related primarily to certain investments in one of the bank's private funds.

During the quarter, the bank repurchased $1.5 billion of outstanding common stock. Earlier this year, the board reauthorized a multiyear common equity share repurchase program of up to $20 billion, beginning in the third quarter. There is no set expiration date, the bank said.