Elizabeth Dennis: Helping Ultrahigh-Net-Worth Clients Adapt to Change

This podcast is brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.

Hello and welcome to Barron's The Way Forward. I'm Greg Bartalus, and my special guest today is Liz Dennis, Head of Private Wealth Management at Morgan Stanley. With more than 20 years' experience at the firm, Liz oversees a portfolio of specialty businesses focused on ultra-high net worth individuals, families, and their foundations. Today we're going to discuss how advisors can effectively serve these clients In a time of increasing complexity and rapid technological innovation. Welcome to the podcast, Liz.

Thanks for having me, Greg. It's great to be here.

Wonderful, wonderful. So tell us a little about yourself, how you got into business, what you currently do, and then let's jump into the topic at hand.

Absolutely. I was a liberal arts major at Georgetown, and I credit a program called the Baker Scholar Program for giving me access and exposure to the finance world. I started at Morgan Stanley on the debt syndicate desk in our institutional securities business in 2001, and I was helping distribute debt from issuers of capital to buyers of capital, was on a trading floor, loved it, did that for almost 15 years. And then I saw the growth engine of our wealth management business. I was very intrigued and eager to make the move, moved to wealth management in 2015, Initially in a capital markets role, then in running a group called Strategic Client Management, where we interface between the investment bank, their clients, and growing the PWM business on behalf of those clients, and was asked to run Private Wealth Management in 2021 and have been doing so ever since.

That's great. The wealth management area has just become so much larger and more dynamic and important over that, in that time frame. I mean, you've really seen the business just—

That's right. And part of why I saw that happening were some of them were obvious, our acquisition of Smith Barney and some of the things that we did strategically after the global financial crisis. But it was also, I was in the habit of listening to our quarterly earnings calls because I was pricing bond offerings for Morgan Stanley as an entity, as a treasury group. And on those earnings calls, I saw a significant shift in the questions from our equity analysts talking usually previously about the pipeline of M&A deals and the Institutional Securities Division to shifting pretty dramatically into the growth and the stability of the Wealth Management business.

Okay, so let's on a high level to generally get a sense of ultra-high net worth concerns in the aggregate, where their minds are at now, what do they care about, and also maybe trends, things that you're seeing more of, just kind of high level to start.

We're in a world that is evolving very rapidly, and our advisors really feel like a large part of their job is to help empower their clients to adapt to that change. And so the, the learnings that we have from a technology perspective, the learnings that we have around helping our clients use that vast intellectual capital that we have, to really spend more time on the things that they're passionate about. Our clients are focused in many cases on growing their businesses, thinking about being a public executive in some cases, or growing their foundation and/or their other passions. And so they're really keen to leverage the global resources of our firm, but do so in a way in private wealth where we're doing that in a really boutique, high-touch model. And what I get really excited about is that on any given day, I'm meeting with clients who are thinking about how do I access the private capital markets, for example, private credit being a recent trend, an example of that. They might be thinking about how do they sell their business through Morgan Stanley's investment bank, or what are the considerations from a tax trust and estate planning perspective if I am going to sell my business not now, but in 5 years' time. And so, you know, the trends that I tend to think about with ultra-high-net-worth clients and many clients in general is that number one, they're focused on making sure that we have a full suite of products and services that are relevant to them. So maybe historically firms like Morgan Stanley on the wealth management side were not exclusively, but very much focused on the investment side of, of how we could help clients. Our clients now are asking for a lot more than that, and we have built products and services to make sure that we're anticipating those needs that may be much broader from still in the financial aspect of their lives, but thinking about unique lending products or thinking about estate planners that are specific to international clients or family offices. Family office space is one that we've spent a lot of time over the last 7 years building out a platform that is unique to the needs of that family office and really providing them institutional-level support. So that's number one. Number two, and it ties in a little bit to the third aspect or trend, but is this idea of customization and personalization. So our ultra-high-net-worth clients don't think of themselves as being defined by their net worth. They really think about themselves in terms of what are the specific needs of their source of wealth, what their family values are, what they care about, and making sure that we have, you know, content and a service model and a coverage model that is unique to that client segment. And then third, and where we've spent a huge amount of time over the last more than a decade, is on digital technology. The rapid-changing environment there is something that we think we've had unique foresight into in terms of anticipating the changes that our clients might need. And one example of that is we were recently reviewing what our PWM Advisory Council has achieved over the last 10 years, which is really driven by what our clients' needs are. And we went back a decade ago and the focus was very much on modern tools. So, you know, e-authorization, e-signature, making sure that we were making our lives for our clients more efficient. And that is something that because we started that a decade ago, we now are able to say that, you know, over 90% of our clients are on Morgan Stanley online, they're using e-delivery, they're using e-authorization so that they have more time in their day to do the things that they care about. And that's only going to get more, you know, amplified by generative AI, clearly. So an example of that on our side is we've started with how do we make our advisors and their teams more efficient? So how do they look at the internal data that we have and, you know, at the drop of a quick question, get all of the documents that are relevant to the question that they have. And then more recently, we're rolling out with the client's approval something that's called debrief, which allows us to record Zoom meetings with clients. And what we do is then we— it auto-generates a response or a, you know, a next step, a next action that we need to take that information, summarize it, and it gives us more time to spend time on the discussion, the analysis, and the execution of what that is, rather than recapping, you know, a summary of a meeting.

To just to distill this a little and try to, you know, in service of people listening, to think to what extent is this unique to Morgan Stanley and to what extent, you know, is this universal, some of these concerns. And it does seem that the holistic approach is obviously paramount, you know, customized, tailored solutions and, you know, be it in investing or otherwise, are of course incredibly important. Are there any things that you're seeing that clients are asking for that might be surprising that you did not see a few years ago that are emerging right now?

Yeah, I think what, what is interesting is the way that clients want to interface specifically with Morgan Stanley, but probably more broadly, part of the reason that we focus so much on the workplace opportunity is because so many of our clients, you know, their primary source of wealth is through the workplace. And so if you look at the strategic acquisitions that we made in 2020, those were of E-Trade and Eaton Vance. And with E-Trade, we gained access to 50% of the S&P 500 public companies. But what people may not have noticed is that 5 years or so prior to that, we bought a private stock plan business called Soleum, which their software is called Shareworks, and that gave us access to thousands of private companies. Right now we cover 120 unicorns in the private space. And a trend or something that may be a little bit surprising is that companies are staying private for longer. And so what that means is that their employees and, and the company themselves are thinking about liquidity solutions. So if a company is staying private on average for 12 years, We need to be able to provide them employee education around their financial picture, but also, you know, potential liquidity solution. And that also ties into a trend that we've been focused on that might be a bit surprising if you, if you went, if you rolled back the tape further, which is on access into private companies on behalf of our ultra-high-net-worth clients. They are very focused on direct access to co-investment opportunities. And what you kind of asked about what, what might be unique to Morgan Stanley is that we have the ability to source from 4 different channels. So I mentioned the workplace channel in the private company space that would give us an opportunity if there's a tender offer for that company to then show those private shares to our ultra-high net worth clients. We're also leveraging the investment banking relationships that we have with private companies to think about co-investment opportunities. We're leveraging our advisor network that is very vast. Fast and scaled to show in co-investment opportunities. And then lastly, and probably the largest opportunity, is with the asset managers that we partner with. We are obviously the largest distributor of alternatives products on the globe, and those asset managers are then showing us direct investments into the companies that are in their portfolio when it's appropriate. And so the combination of all of those things, you know, I think was Something that we had foresight into, but that might've been a little bit surprising if you weren't kind of paying attention to that.

Yeah, no, it's interesting the point that companies are staying private longer and there are far fewer publicly traded companies than there used to be. So, so much more of the economy is accessed in private. And when these companies who stay private longer do go public, a lot of times the easy money has been made by the time they go public. It's like, well, maybe your glory days are behind you, maybe not, but a lot of the big gains already have been had.

Yeah. Right. Well, I mean, some of our advisors, you know, used to be focused on syndicate for IPOs, and that's just not as prevalent anymore. You know, when it's— when we can do that, we obviously are focused on it. But access to ahead of the IPO is something that, like you said, is much, much more in focus.

Yeah. And in terms of investing, what other areas are popular or of increasing interest? You got, you know, I mean, REITs, alternatives, anything else? I mean, tell me what you're hearing.

Yes, our clients are really starting to push, you know, out of cash into risk assets. Clearly, a couple of years ago, you know, cash was at all-time highs, and we are seeing more risk appetite now. And a lot of their interest is aligned with what our global investment committee is recommending. So examples of that are alternatives, private credit, as I mentioned, infrastructure, Residential real estate. Those are all areas of focus for our clients and also areas that our, our global investment committee is keen on. I think fixed income has just become so much more interesting in general because we were in a zero interest rate environment for more than a decade, and that was a hard environment to get excited about fixed income. But as we think about municipals, investment grade credit, Some of the opportunities in the shorter duration Treasury markets still are pretty interesting to our clients. I would just say from a more macro perspective, the two areas of focus, both for our clients and for Morgan Stanley, are around the alternative and private credit markets, as I mentioned. And then number two, importantly, which I haven't talked about, is tax-aware strategies. So in the acquisition of Eaton Vance in 2020, a huge area of strategic importance to us with that acquisition was their parametric product. And I had a client yesterday, you know, asking me about that product, keen to learn more. And, you know, anything we can do that has a tax lens to it is critically important to our ultra-high-net-worth clients.

Yeah, it would seem that tax optimization strategies are certainly popular right now and likely will be given the backdrop of the country's finances and the economy. So tell me, going back now to the service needs of people, like outside of investment, like, you know, the 24/7, the white glove service, and also against a backdrop of technology changing so quickly, you know, and you mentioned in the old days, what, 10 years ago, right? It was about e-signatures and all that. And now, you know, cyber Security is obviously incredibly important. Tell me about some of the things that you're hearing, things that clients want, things that they appreciate, things that go above and beyond what they're expecting. I mean, anything on that point might be interesting.

Absolutely. It's one of the things that I'm always so pleasantly surprised by when I get to meet— the privilege I have of meeting with clients is the effusive gratitude that they have to the advisors, in particular to the advisors and their support staff and their teams. Because the responsiveness that those teams have to clients who, you know, in some cases talking about their financial picture or something that they need to get done in a timely manner comes with an emotional aspect to it where if they're not getting a quick response or they don't feel like the team is coordinated, that that can create a negative experience. And our clients are really— that's usually the first place they start with me is how impactful the team is, asking the right questions. I think that's something we focused on a lot is before we start to tell a client what they should do, let's make sure we understand where they're coming from. Who, what does the client even mean? How many generations are we serving? One of the speakers that is the most in demand, or this group of speakers that are most in demand for our clients, is around wealth education. And how do we talk about, to the next generation about their wealth? So that's something from a service perspective that, you know, is really a long-term way to interface with so many different aspects. But you're right. I mean, the business has changed dramatically, not just on the digital tools front, but private wealth management at Morgan Stanley started over 45 years ago, and we spun out of our institutional equities division, and the business was very transactional, selling individual stocks and bonds. Now we've moved to this very holistic way of thinking about, you know, investment excellence across so many different products and services. But the next, you know, where we're heading and where probably the industry is heading, but where we're specifically focused is what does the tailored client experience look like? What tools are we using? What data are we using to say this is the type of client archetype that might be relevant to you as a prospective client or a client that we've had for a long time, because we want to make sure, as I said, that clients don't feel like, well, we're just saying your net worth is X and therefore here's how you should think about preservation of wealth or growth of wealth and philanthropy and things like that. We want to make sure that we are, again, channeling all of the resources we have. If you are a private executive, public executive, entrepreneur, multi-generational family, foundation, global sports and entertainment client. You know, there's just a lot of different ways for us to make sure we're being tailored in our approach.

And I had a question in terms of communicating with clients and having a tailored approach. How often is appropriate? How often is desired? And then even perhaps, you know, at what point should I just get on the phone and call you if I don't hear from you by ABC? So like, To what extent, if at all, do you get granular with that and preferences?

Yeah, I mean, I think we leave that autonomy to our advisors to ask those questions of their clients. But what we do do is make sure that they're using tools like the next best action tool that we built a number of years ago in conjunction with our now head of AI to say, what are the pieces of data that might be specifically most relevant to this client? And we get the permission of the client to send those, those pieces of information to them in a way that, again, if they are thinking about estate planning, we want to make sure they understand what the potential changes around the lifetime exemption are that could come in 2026. And we've just produced a video that addresses that topic. So we lean into the thought that clients prefer more communication rather than less., but also have, you know, ways of limiting it if that's desired.

Sure. And you earlier mentioned there was a desire for education, and that's something I keep hearing over and over, that clients really at all levels are hungry just for more, yeah, pure information and education to empower themselves in this context of the advisor relationship. And I wanted to bring that up in the context of multi-generational wealth transfer planning because it seems that I think that a lot of next-gen, for example, they may be particularly hungry for more information, but it's not a zero-sum game. I think some might think that, I mean, just cynically, like, oh, if the client is too empowered, they might take their business elsewhere or they need you less. But I do think that it seems to be that they actually, it strengthens the relationship the more that you can empower them and can only likely help more in terms of client retention as a byproduct as well.

Absolutely. I don't think we never would think about empowerment as a negative aspect to our communication. We want to make sure, and Next Gen has a lot of different components to it, meaning, you know, we could start at a relatively young age talking about, you know, why is allowance important or what's the time value of money or simply what is a stock and what is a bond all the way to, you know, the 20-somethings who will come to our Next Gen event., and they learn from each other. They get empowered by each other as well. Something that I was really sort of blown away by, honestly, was our last Next Gen event. One of the 20-something multigeneration family members spoke in front of a room full of some people maybe he had met at previous experiences, but mostly strangers, and talked about the guilt associated with having inherited money. And it wasn't because there was anything negative about the way the family they had generated their wealth. It was much more about what is their mark on the world, how are they going to be independently, you know, building their own business or running their own foundation or thinking about, you know, what they're going to do to contribute. And I was also really blown away by how highly motivated, informed, inquisitive this group of people are and were. And it, it left me very optimistic about the future. It also made me realize that in most cases, to your question around sort of what does empowerment do, in most cases, they all concluded that they needed a financial advisor and human advice so that they could focus on what they wanted to do, which is build a business, run a foundation, all the passions that they had about, you know, making good in the world, and that they acknowledged that that's not their expertise, and they wanted an expert to be doing that on their behalf as a partner.

In terms of philanthropy, where are some areas that they're looking at increasingly in terms of trying to make a difference? And I think it's interesting, in the old days, some of it, of course, came from a good place, but some of it was like a little more like, oh, I got my name on a building or whatever. But there does seem to be a palpable sense of like, you know, there is more of a true reckoning, if you will, of deciding how to be intentional and dispense cash accordingly?

Yes, absolutely. I think there's still a lot of questions around what's the right type of philanthropy, what's the right model. There's this, you know, questions around is it better to be hyperlocal versus global? Is it better to be prescriptive with your giving versus no strings attached and trusting the nonprofit to do the good work that they're going to do, that they have the most information? But ultimately, the work that we do around family governance and philanthropy tie in together really closely because the family's values are going to inform what they do from a giving back perspective. And we recently had our 9th philanthropy exchange. It was held in New York. We had 75 or so philanthropy-focused clients. And these questions came up throughout the— it was a full afternoon and into the evening. These questions came up of, you know, what's the best model? And my ultimate takeaway was that they really benefited from hearing from experts at Morgan Stanley, but also from hearing each other and then refining their strategy based on what fits for whatever they're trying to accomplish. And the theme was really— it was titled Imagine the Possibilities, which gives you a lot of room to run, you know, around being creative and innovative in that space.

Before we wrap up, I wanted to ask if there are any important ideas that you wanted to touch on that we haven't discussed.

I would say just kind of doubling down on the experiences and the feedback that I've heard from clients is that the gratitude that they have expressed around a partner and a financial advisor being there for them is exhibiting the trust that they put in those teams. Because as I said, these, anytime you're talking about a family's financial goals, their aspirations, their preservation and growth of wealth, it is a trust-based relationship. And they always highlight the ability for us to anticipate their needs, clarify their options, and then respond with the best advice possible. And so, you know, I just want to sort of leave you with that idea because it's a privilege for us to be able to work with the clients that we do, and we learn from them every single day. Day. So that's, that's kind of my, my thought to close this out.

Excellent. Excellent. Well, thank you so much for joining. I really appreciate it. Thank you, Greg. Thank you. My guest has been Liz Dennis. For more podcasts and the latest wealth management news, visit barons.com/advisor. For The Way Forward, I'm Greg Bartels.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.