Recent reports suggest that traditional trading/brokerage firms like Goldman Sachs and Morgan Stanley, having been forced into becoming bank holding companies by the financial crisis, are rapidly increasing their lending businesses to HNW and UHNW clientele.
The chart below shows the rapid build in Morgan Stanley’s private bank loan book since 2012. Goldman’s book also more than quadrupled in the same period.
Although not without risk, lending to wealthy clients can be a profitable business on its own. But it has added benefits for bank wealth management units.
• Access to specialized loans, along with a wider array of banking products, helps distinguish these units from standalone RIAs whose product set is largely confined to planning and investments.
• Loans, particularly those collateralized by distinctive assets like art or collectibles, are sticky and tend to more strongly tie borrowers to the institution.
• The presence of lending makes it more difficult for wealth managers/brokers to break away from their employers in favor of platforms that do not include banking products.
Given these benefits, we expect the pace of HNW lending and other specialized products and services to continue to grow as financial institutions search for ways to remain competitive in the HNW and UHNW space and realize more profit from their expanding wealth relationships.