Follow the Money

Financial services firms want wealthy clients. And wealthy clients want the latest technology. In the short term, at least, this is not good news for Morgan Stanley’s retail unit, where a strategic drive to focus on upscale customers does not line up with its weak online presence and other lingering technology deficiencies.

Like many of its rivals, Morgan Stanley is focused on providing quality services for wealthy investors, reserving its financial advisors for the big dogs while shunting accounts of less than $100,000 to call centers.

The company lost hundreds of top brokers during its recent turmoil, but it also showed the door to about 1,000 of its brokers who serviced smaller portfolios. Chief executive John Mack has singled out “high-net-worth business” as “a key growth opportunity” for the retail unit.

But there’s the rub: According to Forrester Research Inc., wealthier investors spend more time managing their money online than do less affluent people—and the ability to tie a customer’s Web experience to technology at the broker’s ­fingertips may be increasingly important in the future.

“More than one in five millionaire investors traded online last year, a much higher percentage than the next category,” says Forrester analyst Bill Doyle. “Wealthy investors are disproportionately likely to visit their provider’s Web site. They are actively managing their financial lives online.”

And wealthy customers want more than just online trading; they also want online equity research and sophisticated tools that can do things like determine optimum asset allocation.

“It’s our conviction that firms that aspire to serve the affluent neglect the online channel at their own peril,” says Doyle. “Affluent investors may defect to other firms, or at least not put new money in the one with poor online service.” He describes Morgan Stanley’s Web presence as “really dated.” Morgan Stanley says upgrades to its client site will begin rolling out this spring.

But it will take more than just a fancy face-lift for the Web site. Firms with better back-end technology will find it easier to push sophisticated tools out to their online customers, says Doyle, making Morgan Stanley’s internal deficiencies even more of a liability. And increasingly, customers will want the best of both worlds.

“We’re headed to a more collaborative relationship between investors and brokers,” Doyle says. “Investors want to go online and say, ‘I’m looking at this. What do you see? Send me the picture, send me the retirement-income forecast.’ You’d better have tools to support these needs.”

Doyle does see one potential silver lining for Morgan Stanley: “If they get serious about it, and invest a lot, they could leapfrog the competition, the way some countries have skipped wired phones and gone straight to wireless. If they do that, with the more hands-on participatory investor in mind, they could seize a little bit of an advantage.”

Story Guide:

Morgan Stanley: Trading Sideways