“The power of diversification is real… things are going to outperform in various market cycles.”
Ben Huneke is a Managing Director and Head of the Investments Solutions Group of Morgan Stanley Wealth Management. His responsibilities include product development, marketing and distribution of investment products. These include annuities and insurance, mutual funds, ETFs, hedge funds, private debt, equity and real estate funds, as well as individual equities, fixed income, and structured products.
The significant growth of JP Morgan’s wealth management business offers customers access to a wide range of investment solutions. It’s important for financial advisors to understand and leverage the full suite of tools available as part of the product platform within today’s markets.
“I just believe the more tools you can bring to that problem, the better solution you're going to get.”
Clients are advised on both the short and medium-term consequences in the market, but also the broader societal issues, like social justice and wealth inequality, and how they will play out in the long-term. A quick recovery out of this pandemic-caused recession is expected, but it is yet to be seen how the economy reacts to issues addressed in the form of taxes or reduced benefits (Medicare, Social Security etc.), so investment must account for those potential eventualities.
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SPEAKER
Ben Huneke
Managing Director & Head, Investments Solutions Group
Morgan Stanley Wealth Management
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darsie: (00:08)
Hello, everyone. Welcome back to Salt Talks. My name is John Darsie. I'm the managing director of Salt, which is a global thought leadership forum at the intersection of finance technology and public policy. Salt Talks are a series of digital interviews we've been doing during the work from home period in lieu of our global conference series, The Salt Conference to provide our audience a window into the minds of subject matter experts who are leading investors, creators, and thinkers, and also to provide a platform for what we think are big world changing ideas and also great investment opportunities. And we're very excited today to welcome Ben Heineken to Salt Talks.
John Darsie: (00:42)
Ben is a Managing Director at Morgan Stanley Wealth Management and the Head of the Investment Solutions Group. His responsibilities include product development, marketing, and distribution of investment products, including annuities, insurance, mutual funds, ETFs, hedge funds, private debt, equity, and real estate funds as well as individual equities, fixed income and structured products.
John Darsie: (01:05)
During his career at Morgan Stanley, Ben has held several previous alternative investments as the chief operating officer of investment products and services and the head of strategy and business management. He sits on the Morgan Stanley securities operating committee, as well as the firm's management committee. And he also sits on the board of several charitable organizations, including Invest in Others and the Expect Miracles Foundation.
John Darsie: (01:29)
Ben holds an AB from Princeton University and an MBA from Columbia University. And hosting today's interview will be Anthony Scaramucci, who's the Founder and Managing Partner of SkyBridge Capital, a global alternative investment firm. Anthony is also the chairman of Salt. And with that, I'll turn it over to Anthony for the interview.
Anthony Scaramucci: (01:46)
Hey Ben, it's a great honor to have you on. And you got a very impressive resume, not quite as impressive as John Darsie's ancestor, George Washington, but I think it is very impressive. So tell us something though about how you gravitated into the investment world though, Ben. With your resume and your acumen, you could have done anything, why did you come into our business?
Benjamin Huneke: (02:14)
Well, thank you [inaudible 00:02:15] and for having me. I'm excited about this virtual Salt Talk. I've been at Morgan Stanley for 14 years. I was a consultant at McKinsey before that for five years, I try not to reveal that too often. But I was a consultant Mackenzie. I have an MBA [inaudible 00:02:35] Columbia investment banking analysts for a firm called DLJ which is long gone at this point.
Benjamin Huneke: (02:41)
But in my time at McKinsey I did spend a lot of time in the financial services practice. I spent a lot of time in the asset management and brokerage wealth management space. And so just keep getting really intrigued by the industry, really like the proximity it has to the market and a lot of the interests there, but also the personal component of helping people and individuals take care of their financial goals. I love the fact that you get to be near the markets every day and that's an exciting thing to learn about every morning.
Benjamin Huneke: (03:16)
But then also you have this mission driven part of it, which is to help people deliver, help our advisors deliver for our clients in terms of delivering on their financial goals. So it's got a good balance for me in terms of both interest and mission.
Anthony Scaramucci: (03:32)
Go back a deal Jay for a second. What year did you start at DLJ? Some of us are old enough to remember DLJ Ben.
Benjamin Huneke: (03:38)
Yeah. I started in '96 and finished there in '99. So I was there three years in the investment banking group, in the high end group.
Anthony Scaramucci: (03:51)
How'd you make the transition from investment banking, high yield into where you are now on the asset management side?
Benjamin Huneke: (03:59)
It's actually at the time DLJ had a merchant bank or what you call private equity at this point, and it was actually attached to the investment bank. So I don't think he could ever get away with that now, but back then the merchant bank was actually part of the investment bank. And one of the last assignments I worked on at DLJ was for a company that DLJ actually bought.
Benjamin Huneke: (04:18)
And then the company was in trouble and we spent a lot of time down in Texas working with this management team trying to help save this company. And I really actually enjoyed that part of my investment bank and for the most, which was really less about financing companies and more about running companies. So when I got out of business school, I went to McKinsey to help see how different management teams manage businesses and just give you my background in financial services. And some of the stuff I did, I ended up working in wealth and asset management, and I would usually have steady now I'm assuming 14 years helping to run the wealth management division.
Anthony Scaramucci: (04:57)
Ben, in the 14 years, you've seen explosive growth, right? Morgan Stanley now 15,000 plus financial advisors, $2.7 trillion in financial assets. And you are obviously at the intersection of Smith Barney merging with Morgan Stanley. What are the keys to Morgan Stanley success in that space? Arguably, the best, or if not the best among the top two or three in wealth management?
Benjamin Huneke: (05:28)
Yeah. Look, I mean, [inaudible 00:05:29] you one big component of his commitment of senior management to the business. Obviously our CEO, James Foreman comes from wealth management business and knows and likes the business a lot. Obviously Morgan Stanley had its challenges through the financial crisis, but one of the best, if not the best thing that happened certainly to Morgan Stanley coming out of that was the ability to structure a joint venture with Citibank and eventually merged with Smith Barney.
Benjamin Huneke: (05:57)
And what that gave us, I mean, effectively more than double the size of the wealth management business, it takes when you add wealth and asset management together for Morgan Stanley, it's basically almost half the business, both on a revenue and profit basis. So the business is critical to this success of Morgan Stanley and it gives us a scale. On some level, these are big, complicated businesses that require lots and lots of investment. And the ability to invest across a bigger platform just allows us to build better technology, deliver better products. And scale is just so critical in terms of being able to do that efficiently and the scale that we've gotten through the Smith Barney merger, certainly in the advisor, led channel has done, got us to that scale. Then now we've made a couple of subsequent acquisitions, which maybe we'll talk about that have gotten us to scale in some other parts of the wealth management business, which we're super excited about.
Anthony Scaramucci: (06:57)
When you sit at the head of product platform at Morgan Stanley and you've got the pick of the litter. You can go in any direction that you want to go, as it relates to hedge funds and private equity alternatives and the whole bees wax, what do you tell your FAs about your world, the world that you're sitting in? Why should their clients have exposure to Ben Huneke's world?
Benjamin Huneke: (07:24)
Well, look, I think one of the things I probably endlessly... FAs are sick of hearing me talk about it, but I think I just believe that if you have a client problem, the more tools that you can bring to help solve that problem better. Too many of our advisors use narrow portions of our product platform, and aren't familiar with, or have a background in using the full breadth of the product suite.
Benjamin Huneke: (07:49)
So my mantra with my management team is like, we need to partner to help our advisors understand how to use, bring these tools to bear whether you're talking about a structured product, or a hedge fund, or private equity fund, the exchange fund, insurance, our clients have a myriad of different financial issues that need to get resolved. And I just believe the more tools you can bring to that problem, the better solution you're going to get. And yeah, it's critical, especially with where the market is today. You really have to be flexible and look broadly and invest in options because the public equity and public credit market, it's challenging right now.
Anthony Scaramucci: (08:32)
All right. So let me push back because Ben, as you know I deal with FAs every single day, and I know that you're wondering why my hair is not gray as a result of that experience. And that's a whole other topic for the E Channel, but we're going to focus on this. It's only pushed back. Let me be the typical FA, if you don't mind. Well, why do I need you? I mean, I can just buy those five grade technology stacks and I can own them in an ETF. And so give me the rationale to do anything other than that, Ben.
Benjamin Huneke: (09:05)
Well, look, I think one... I mean, if you listen to our global investment committee, I think they would say, especially now owning those five technology stocks is probably the exact wrong thing to be doing given just how concentrated the equity markets have become in those big technology names. So I think one, there's a lot of risk embedded in that investment strategy. And I think most of our clients need a mixture of fixed income and equity income. They need capital appreciation. They need some level of protection from an insurance perspective.
Benjamin Huneke: (09:41)
We're trying to solve to make sure that our clients have the best chance of delivering on what they need this money to do. And it's really hard to just put all the chips on the table and buy the technology ETF and hope everything goes up, [inaudible 00:09:53] it goes up, it might happen, but it's not just a sound investment strategy for retail clients to take that risk for their financial future. And the power of diversification is real. So things are going to outperform in various market cycles. I know it's hard to say that because these stocks that you mentioned have been so incredible in terms of performance over time, but you got to prepare for all different circumstances and having all your chips in one basket, I think is a poor investment strategy in the longterm.
Anthony Scaramucci: (10:26)
Well, I mean listen to four or five of those stacks are representing 25% of the market capitalization of the SMP. And so having done this for 32 years, that always ends in tears. It's not a question if it's going to end in tears, it's really when-
Benjamin Huneke: (10:42)
You always get nervous, which this time is different, right? Like the dotcom bubble, and it was those of us who weren't investing in those companies and we didn't get it somehow what was going on. And I think these are better, bigger, different companies than were in the.com bubble to a certain extent, but the same is true. I was getting nervous when people say this time is different.
Anthony Scaramucci: (11:01)
Yeah. Well, there's some of those names, 160 times earnings. So you could even just get slight multiple compression split, have good fundamentals and see a lot of evaporation of value.
Benjamin Huneke: (11:13)
One thing that you focused on with those companies because those issues are so broadly held and the appreciation is so significant in a lot of those positions. I mean, one of the big focuses we have is around how to hedge those positions because you have huge tax little gains, now that those companies have brought up so much. So helping our clients diverse lives, not necessarily by just selling, but also figuring out ways to estimate those.
Anthony Scaramucci: (11:37)
Well, listen, but the flip side is some of those companies are legendary heirloom like companies, as well as I'm not really necessarily just picking all the companies. I'm just pointing out that we need broader asset diversification. You clearly are at the forefront of doing that. Let's go around the horn for a second, equities have rallied back the NASDAQ's up 20%. What areas of the world do you like on an absolute, fundamental and relative value basis to what you see in the landscape right now?
Benjamin Huneke: (12:12)
Look, I mean, I'm not a markets person per se, but I mean, I do believe our global investment committees out with a pro stance towards active management. I think they are, you mentioned some of these stocks that have become as the market has run off, the market has become narrower and narrower in terms of where that appreciation exists. And I think that has made everybody increasingly nervous. That said, people tend to turn on CNBC and look at the SMP and think that's the whole market. There are pockets of the market that are not trading very well at all. And I think our view would be that active management and being able to pick those parts of the market that are potentially undervalued. This is a period in the market where that should be valued and it should pay off over the short to medium term versus just buying the index at this point.
Anthony Scaramucci: (13:05)
So let's talk about the global investment committee for a second. So what is their view of hedge funds right now? What hedge fund sectors do they like or dislike and obviously hedge funds, I mean, let's just face it, they've lost the argument over a decade between active and passive management. And so are they about to win that argument or is that our even permanently lost? What are your people on your global investment management committee said?
Benjamin Huneke: (13:33)
Well, I mean, we try to talk about... We believe that there's always a place in a portfolio for both active and passive. One side is not going to win versus the other in any fundamental way. I think what you've seen over the past 10 years, 20 years is just the introduction of this algorithmic computer based training, which is what an ETF is effectively. It's a computer buying based on a market cap weighted, or some other algorithm and the efficiency that that can bring to investing and how cheap it can be, I think that is something that's here to stay and it's going to be an important part of our client's portfolios.
Benjamin Huneke: (14:09)
However, I look at it as again, with the benefit of diversification, there are parts of the market that are less efficient whether that's geography, maybe outside the US or whether style box as you get down in the style boxes to small cap means, maybe there's less efficiency and more willingness to go active. I think there's not just market segments, but time in the market when it pays to go active.
Benjamin Huneke: (14:37)
I think our perspective is this, is one of those times where owning the index, given the concentration you talked about, it's you're owning the SMP just long. A, you're very concentrated. B, it's volatile. So a lot of our clients, it's not to have a new team for all equity portfolio. So hedge funds can do a great job of delivering absolute returns. They can do a great job of weathering certain market cycles. So I think both timing in the market, which we think is now a good time to be looking at active and also parts of the market.
Benjamin Huneke: (15:07)
So if you're outside the US, if you're in small taps, maybe better to be more active than passive. And certainly we haven't talked about fixed income, but I mean, it's certainly in the fixed income markets, I think active continues to win share over passive.
Anthony Scaramucci: (15:24)
Ben, you're doing this a long time, you've seen a number of different ups and downs in the markets. I thought that 2008 crisis was bad. I think it's a dress rehearsal for 2020 in terms of what's going on vis-a-vis the overall markets. What is your opinion of the current crisis? How is it differ from 2008, other crises that you've experienced in your career? And what do you think the aftermath is of the crisis?
Benjamin Huneke: (15:51)
I mean, look, I was working in New York city during 9/11 which I thought would be unprecedented. I certainly, I was working at Morgan Stanley during the global financial crisis, which clearly the epicenter of that crisis was right there in times square with leaving brothers[inaudible 00:16:08] right across the street from Morgan Stanley. I thought those two periods of my career would be the most unprecedented. And clearly this has superseded that by factor one, just the fact that it's global, and two it's because it's hitting every aspect of the economy at the same time globally. So look, I think the thing I would say is the severity of it upfront. So how quickly the world drove off into a ditch and how quickly unemployment went up and how quickly the world economic picture changed is unprecedented.
Benjamin Huneke: (16:41)
Certainly the global financial crisis was quick, but not like this. And then the other thing I'd say on the back end is the reaction of the government globally and how quickly the government stepped in and the scale with which they stepped in is completely unprecedented. When they did $800 billion of tarp in the global financial crisis, everyone thought that was just an extraordinary, we are most multiples of that already. And we're only five months into this.
Benjamin Huneke: (17:12)
So in Europe, jogging didn't say whatever it takes until 2012, so that was three years after the crisis had broke. So I think the severity of it to the downside, but then the extraordinary fiscal stimulus that's come into, and market support that's coming in from the governments globally, I think is why you probably see the markets trading where their trading, right.
Anthony Scaramucci: (17:38)
Yeah. And certainly Mike Wilson from Morgan Stanley, I think he's been spot on in terms of his dissertations on the market.
Benjamin Huneke: (17:49)
Don't tell him that.
Anthony Scaramucci: (17:50)
Don't tell him that. Okay. I won't tell him. We'll probably have to get him on here. I don't know if maybe we won't be able to fit his head in the Zoom screen, because I follow him pretty closely. I think he's-
Benjamin Huneke: (17:59)
No, he's been very [awful 00:18:03] at this, through this whole crisis. It's been great to have him and just call at least shallot out, talking to our clients about their views [inaudible 00:18:11].
Anthony Scaramucci: (18:11)
Well, and Lisa as well. No, I think the team has really been spot on in terms of identifying what is going on and why it's going on. But let me ask you an editorial question. You're watching this level of stimulus, this level of deficit spending. I'm sure clients call you or FX call you and say, okay, should I be worried? And am I worried about the right things? Should I be worried about the deficit? Should I be worried about the aftermath of the crisis and what seems to be a further divide in terms of the wealth gap in the United States?
Benjamin Huneke: (18:47)
Well, look, I think that's, I mean-
Anthony Scaramucci: (18:48)
the clients.
Benjamin Huneke: (18:51)
... Look, I think a couple of things. One we've been constructive on the markets this year because of the size, the physical stimulus and the reactions. That's a short to medium term call. I think there is concern obviously about how this unwinds. Clearly the United States as a society and you've seen this with the black lives matter movement, and the strength that that's taken on in the middle of this crisis, clearly are reaction to lots of the elements of social justice in our society, one being wealth disparity. So I think the United States has some real issues to address around that topic that we need to address. So what form does that take as we try to address that taxes benefits. So for our clients, over the short term it's instructive because we think we are going to work our way out of this recession in fairly quick order.
Benjamin Huneke: (19:54)
I don't know whether it's a V or a U or a shape of the letter, but I mean, by the fourth quarter of next year, we envision us being back to where we were for this whole thing started, but that doesn't fix the overarching longer term structural issues. You've mentioned wealth inequality, but also just deficit spending. And how does that eventually come back through? maybe we forgotten, we talk a lot about inflation, but inflation has not been an issue in a long time and the painful repercussions of that. So I think whether it's inflation or whether it's higher taxes, or reduced benefits to Medicare, social security, I mean longer term, we're talking to our clients about preparing for those eventualities. And as we try to work our way over the longer term out of what has been an extraordinary amount of spending that you've done in this country to help us get out of this mess we're in.
Anthony Scaramucci: (20:46)
Yeah, essentially we had a debt selling author. She's a university professor at Stony Brook University, Ben. Her name is Stephanie Kelton. She came on Salt Talks about a month and a half ago to talk about her new book called the Deficit Myth. And she's basically saying, she thinks that you can continue to create this deficit activity because there's a big hole in our economic output. And so it's not going to cause the inflation that people are fearful of and it's not going to be a tremendous drag on longterm investment spending. If she was here right now, what would you say to her?
Benjamin Huneke: (21:24)
Absolutely not. I mean, I'm not a marketing person, I'm certainly not an economist. So look, I mean, you read about modern monetary theory. I think there's a lot of debate about how [inaudible 00:21:34] wants. I mean, I don't think any economists don't understand when you pump this much money into the economy, why is there no inflation? All the equations that they've learned over the years around inflation have become untrue in the current environment. So I think there's a lot of uncertainty about this level of indebtedness globally and how that affects, and how that unwinds over time. But it has to at some point, but I think even economists who are highly more qualified than I am, don't really understand why the economy is reacting the way it is.
Anthony Scaramucci: (22:11)
No, listen, it's an interesting phenomenon that's taking place, is that we're trying to get our arms around it as well. I mean, we watched gold rise in value 2009 into 2000 late, 2011, then it collapsed. We're watching it rise again. Now it may or may not lead to or auger for inflation. We'll have to see, but go ahead, John. I know you have a couple of questions from our audience. Why don't you jump in here and start firing some questions at Ben?
John Darsie: (22:39)
Yeah. As the head of the investment solutions group and you're in charge of overseeing a lot of the products that are on the platform, how during a crisis like this, when things are moving very quickly, you have a meteor strike that no one saw coming? How do you balance long term risk management decisions on behalf of your advisors and your clients, and also the desire to be opportunistic and to try to buy things that might be on sale? How do you balance those two factors when you're looking at products during a crisis like this?
Benjamin Huneke: (23:09)
I mean, look, I think it's a great question. I mean, to me it is the reason why we believe in human advice and the importance of an advisor is that each client's situation is different in terms of addressing a situation like this. So even if the risk tolerance is the same, even if the net worth is the same, the way a client thinks about risk, where they are in their life, what's coming up in terms of expenditure, you have to react differently for each client. So what we try to do is provide opportunities for advisors [inaudible 00:23:42] protection and conservatism as well as opportunistic opportunity.
Benjamin Huneke: (23:48)
So it's all designed to help clients take advantage of this dislocation. That's not going to be suitable for all of our clients, but we definitely wanted to have the ability for advisors who did have clients who could step in to do that. And we saw that in alternatives and some of these private equities, special situation, distressed funds that we've launched. We also saw in the fixed income markets, like when the muni market really dislocated in March and all of the mutual funds were redeeming uni bonds, our RFAs were able to step in and buy some of those bonds that really attracted valuation. Mutual fund managers had outflows they had to meet, the market was very dislocated, retail was able to step in and get some really good bargains in that dislocation.
Benjamin Huneke: (24:36)
So I think it's hard to make a generic comment because it's so specialized to an individual client, but we certainly had a lot of advisors who were I think more open to stepping into this dislocation than they were maybe in 2008. And also, I think they learned a lesson in 2008 that they had been pressing enough to buy into the market in March, 2009 they would have looked pretty good. And so I think we had more appetite earlier on in this crisis than we did in '08.
John Darsie: (25:10)
Are there any specific areas of the market, you mentioned a few special purpose vehicle type of things that Morgan Stanley has done. Are there any particular areas of the market that your advisors have gravitated to and as an organization, you guys have spotted, what you think is tremendous opportunity as a result of dislocations coming from the pandemic?
Benjamin Huneke: (25:27)
Well, I think the credit market. I mean, honestly, the credit markets, I think look, the current rate environment is so challenging for our client base. We have on average, older client base, the capital base that they're managing, a lot of advisors need that capital base to generate income. We've had now 13, 12 years of low rates and now going even lower, it's been really challenging for savers to generate the income that they need off of their assets. So one big theme that has been true and it's continued to be true and probably even more true is the idea of being creative in ways to generate income. All that could be in real assets, infrastructure, private credit, structured products, like 80% of the structured products we sell today, have an income component attached to them.
Benjamin Huneke: (26:18)
So if there's one thing I would say is income. And the second thing that I think has become even more increasingly important is taxes. I mean, people have become much more aware of after tax return versus freebies attached. So being tax efficient in the way in which you invest is critical. And I think we talked about how this unwinds itself, I mean, I think everybody would expect higher taxes in this country. And so that's going to become even more critical in how efficient you are in owning assets from a tax perspective.
John Darsie: (26:52)
You talked about the need to replicate the yield that investors, especially older investors and Morgan Stanley, having a client base that's aging needs to replicate the yield that you would traditionally get from traditional fixed income. Are there areas that Morgan Stanley has emphasized in terms of trying to replicate that yield and more creative way?
Benjamin Huneke: (27:12)
Yeah, I think, look, one, I mean I mentioned structure, that's certainly become an income source for a lot of advisors and I think the other one is alternatives. You definitely have a big focus on income oriented real estate and other real assets. And I think in the fixed income markets, you can make money by taking credit risk. You can make money by taking duration risk, or you can give up some liquidity. I think it's tough to take on duration risk now with how flat the curve is. The credit situation, especially now that we're in the midst of this dislocation, I'm not sure that our client base is really well prepared to make calls on individual credits at this point. I mean, it's very murky, what's going to happen to some of these companies as we work our way through this unprecedented economic turmoil.
Benjamin Huneke: (28:05)
And so liquidity is one where you can give up some liquidity, you can hand the money to a professional manager who potentially has more insight into what's happening in the credits spectrum. So we've had a lot of interest in income oriented alternatives. And then you have to look, there's also just the annuity products. The math would say that including annuities in retirement portfolio for many of our clients, not all of our clients, but for some of ours clients deferred income annuity as a pretty vanilla way to provide some level of guaranteed income in retirement. And so that's another place people are looking to drive income away from just buying individual bonds.
John Darsie: (28:51)
So you're a strategy guy at heart. Having spent a lot of time at McKinsey, earlier this year, Morgan Stanley announced the acquisition of E-Trade to further bolster its industry, leading wealth management offerings. From what I understand from public filings that acquisition is moving forward with some regulatory approvals and E-Trade shareholders recently approved the acquisition. Why is that addition so exciting for the firm? Why did Morgan Stanley go out and make that acquisition? And where do you see the industry heading in five to 10 years in the context of why you made that acquisition?
Benjamin Huneke: (29:24)
So a couple of things. And then we talk, Anthony and I talked at the beginning about the party and how important it was for us to be able to get to scale in the adviser led channel. And so we were able to do that through the spiff Bonnie joint venture. I think when we talk about the next leg of our growth strategy, we bought a company last year called Solium, which was a stock plan administration company. We had had an existing stock plan administration business as part of the JV. So combining those two, and then acquiring E-Trade.
Benjamin Huneke: (30:01)
E-Trade [inaudible 00:30:01] was very we're very excited about E-Trade. They made a couple of things that are really exciting to us. One is they have a direct to consumer brand. So Morgan Stanley does not have a direct to consumer brand. I mean people know who Morgan Stanley is, but we do not advertise directly to consumers. We have always gone through advisors and their relationships to build our business in wealth management. So this gives us a separate brand, that's well-established brand in the direct to consumer space.
Benjamin Huneke: (30:28)
It also gives us a stock plan administration business that we can add to our existing Stock plan business. And so as we think about an avenue for growth, for us going to the workplace through the stock plan business, leveraging corporate relationships that we have both at the Morgan Stanley level, through our investment bank and corporations that we have relationships with on the private client side, there are huge opportunities for us to deliver wealth management services to the workplace and stock. The Stock plan administration is a way to get into that business.
Benjamin Huneke: (31:06)
But then once we have that participant as part of our stock plan business, we can offer a pretty broad range of financial services to that individual in financial wellness. And we can handle clients of any spectrum so they can choose what they want from us when they need that stock plan. They can say, you know what, I just like to trade my own equities and options. You will have a direct to consumer E-Trade account that will be best in breed in app. We have a global advisor that has all the insight from Morgan Stanley built into it, so if you say, I don't need an advisor, but I don't want to trade myself. I want a package packaged investment solution [inaudible 00:31:46].
Benjamin Huneke: (31:45)
We have a virtual advisor group that can service a client remotely through a phone based salary plus bonus advisor team. And then we have our 15,000 advisors. So from the most sophisticated wealthiest clients coming out of those stock plans to the ones who want to be the most self directed, we can offer a full spectrum of options. And so that will [inaudible 00:32:10] acquisition for us as money comes out of both the stock plan and 401k businesses in the workplace.
Benjamin Huneke: (32:16)
And as we thought about this strategy going direct to consumer, obviously you mentioned a Wealthfront betterment, some of the global advisors that are more new to the business. We looked at that landscape and thought it was going to be very difficult for us to compete with Vanguard, Fidelity, Schwab, E-Trade, Ameritrade. These are big, well established brands in the marketplace. They spend hundreds of millions of dollars marketing. They have 401k businesses in the case of Schwab and Fidelity. They have stock plan businesses. And so they have an inborn ear of clients. So it was really hard to think about how to get direct to consumer in a startup fashion for us, Morgan Stanley, so buying E-Trade, checks a lot of boxes for us in terms of filling out the spectrum of wealth services that we're able to offer as well as by giving us a view into the direct to consumer businesses, which we really haven't had before.
Benjamin Huneke: (33:20)
And a lot of our clients, they have accounts at one of the direct to consumer brokerages. So they have a Corpus of their money with their advisor, but they trade their own stocks with a Schwab or an E-Trade or an Ameritrade. So this is a chance for us to say, bring those accounts to unpack at Morgan Stanley company. We can aggregate them together. We can do a financial plan on the whole asset base et cetera. So lots of benefits in consolidating assets.
John Darsie: (33:49)
Yeah. You largely answered my follow up question and that's a great answer on the E-Trade acquisition and more in depth than I've been able to read in the public channels and it makes a whole lot of sense. In terms of technology you touched on it briefly, but obviously you've had insurgents from those lobo-advisors, like you mentioned. In terms of technology, where do you see the industry going? Do you see those robo-advisors taking a larger slice of the market share, or you think we just all arrive at the same place where it's robo-advisor like technology assisted by human advisors, the way that Morgan Stanley has scaled it in a variety of different solutions?
Benjamin Huneke: (34:27)
I mean, look, I think it's very client specific. I think there are a group of clients who want to trade stock themselves and don't want to pay for advice and we want to be able to serve those clients. There are clients that want advice in a robo fashion and don't want to deal with an advisor, and we want to have a solution there. And then there are a whole lot of special clients around what type of advice they want. My belief is, and I think you'll see this in the development on a lot of these platforms is that we think the winning combination is human advice and market insight that Morgan Stanley has with technology.
Benjamin Huneke: (35:06)
So technology enable our advisors deal with our clients every day in the solutions they are able to deliver. And it's very hard to imagine a computer or an algorithm or a five questionnaire, risk profile, being able to deliver the same type of results that our advisors are able to, or maybe if they just feel like it's not worth it to deal with an advisor, but we believe that there's tremendous value in having human advice and make huge investments in the technology to help our advisors.
Anthony Scaramucci: (35:40)
Well, we agree with you Ben on that. And I think it begs the question that I often get asked. I'd love to hear you respond to a question that's often asked of me, of FAs and potential clients and prospects of Morgan Stanley. How do I prepare myself and my family for the end of my business career? Meaning I've just sold my business. I'm coming into this liquid set of assets. I'm going to turn it over to Morgan Stanley. And how do I know you guys are going to make it bulletproof for me? Because frankly, as an entrepreneur, I'm giving up all of that control that I had in my business. And I'm now handing it over to you guys. What comfort do you give these guys? How do you set that framework for your potential prospects?
Benjamin Huneke: (36:31)
Look, it's hard. I mean, often it's hard because for those entrepreneurs in particular you mentioned, a lot of the source of their wealth to the extent they've been successful has come through concentration and ownership. So they had a lot of their network tied up in a company that was then sold and often extolling the virtues of a diversified portfolio cuts against everything that they've done in their career today, because it's exactly the lack of diversification and their success in that that has created the wealth to begin with. So I think there's an education of when you move to that next phase, it's more about staying wealthy than about getting wealthy again. And so that's sometimes a difficult discussion.
Benjamin Huneke: (37:18)
And I think the other thing that often is, far more when I go to meet with bug clients and prospects, I come often as the product guy, which I've been talking about, like all the products that are on our platform and some interesting private equity funds that we've been doing, et cetera. And oftentimes you'll see the client's eyes glaze over when you start discussing those products because they don't realize, a lot of folks don't really care that much. Where I see clients really get engaged is when I'm coming in at the tail end or the person coming in after me starts to talk about more the goals and aspirations for what you want this money to do. And I think that's where our best advisors are spending the most time with their clients in terms of helping them deal with multi-generational wealth.
Benjamin Huneke: (38:05)
Most parents, one of their biggest fears is if they've been very successful, is it somehow that success is going to mess up their children? And how do you handle passing wealth on a responsible way? How do you feel about charity? How do you feel about your children and how to pass that wealth on? So I find it interesting that a lot of clients... We in the industry think that clients are just really interested in what we've been showing to them over the years, which is your mid cap, US growth manager beat its benchmark by 80 basis points.
Benjamin Huneke: (38:36)
I actually have that different experience, which is a lot of clients that I've interacted with are much more interested in the personal side. They're much more idiosyncratic side of their wealth and how their family is handling it. And that's why our best advisors are so successful, is they have been able to be successful and use the platform from an investment perspective, but really to engage with clients on what's most important of it. And that's often not the investment side of the equation.
Anthony Scaramucci: (39:07)
Well, listen, you're making a great case for that holistic approach that Morgan Stanley provides. And I will say this I've been on calls with Morgan Stanley FAs, that even though I'm representing SkyBridge we're coming at the call from a very holistic approach, which I think the prospects do appreciate. Before we let you go Ben, one other question often comes up, I'm just curious how you would react to this. Well, the media or strike that has hit planet earth in March. I hear it all the time, it's a 10,000 year flood, but the problem on wall street is at the 10,000 year flood seems to happen every five years, Ben, and you know that. And so, what do you say to clients?
Anthony Scaramucci: (40:01)
What is the... Okay. Yeah, it's 100 year pandemic, the much performance certainly in certain funds, our fund, other funds, was a rough turn, but how do you condition clients for the long pool? How do you condition clients to recognize that the markets and asset prices from a fundamental perspective, they lurch upward despite the creakiness and psychological uncertainties and vagaries in the world. What is your message there?
Benjamin Huneke: (40:33)
Yeah, look, I mean, I think this one's an interesting one. It's almost like we spend the time after a crisis solving the last crisis, but not solving the next one. And so I think obviously the financial system itself, the GCP banks and the large banks in this country, whether the storm on COVID pretty [inaudible 00:40:57], and I think that's a testament to the fact that we've been working with regulators for the last 11 years trying to ulster the global financial adequacy and all of that. I think it worked quite well versus in the GFC where it clearly did not.
Benjamin Huneke: (41:19)
So I think we should give ourselves some credit as a society for addressing some of the issues that existed before, but clearly this one raised a whole another set of issues. I think a couple of things, one is the market disfunction what's tough. Certain parts of the credit markets really did not function very well during this crisis. And I think there will be a lot of scrutiny put on how these markets function and what we can do that help bolster them and make them more resilient. I think it is not good when the government has to step in and buy IO bonds, step in to save ultra short duration funds. That's not a great factor. And so there will be on the back of this. I made some posts for them around, how do we think about in particular the credit markets and how they function during the crisis?
Benjamin Huneke: (42:10)
But from a client perspective, we try very hard. It's difficult, obviously when you're watching CNN and you're watching the tone board on the right with all the people getting sick and dying from this horrible disease. I think we're trying very hard to get our clients to look past temporary interruptions in the market and become overly fixated on whether the SMP is red or green in a given day, and really talk to them about how they're doing longer term. And then to try to make sense it's feasible, is to try to convince people that this is exactly the time when you need this. You need to definitely stick to your guns from an asset allocation perspective.
Benjamin Huneke: (42:57)
The worst thing, and everybody is there's so many stats about this, the worst thing that happens is people sell and don't get back in and miss in the marketing. But at the very least stay invested and stay competent in the plan that we developed, that this is a temporary hiccup in a much longer term picture. And if you zoom out far enough, the market tide goes onto the bright pretty uninterruptedly. But also, maybe there's a chance to take advantage of this, and maybe we can upgrade some of our new portfolios. Some of these really good companies have been really garnished here over the short term, but maybe we this is a good entry point.
Benjamin Huneke: (43:37)
I think our best advisors were looking for opportunities early. And also very much cautioning clients. The worst thing you can do is go to cash right now. And that is something that I think, historically has been a slaw of retail, which is the market goes down and retail sells. And I think that's something really, really [inaudible 00:43:59].
Anthony Scaramucci: (43:58)
I think is great messaging. I think we should end it there because I think your message is the perfect one. You have to stay invested, not get kicked out by short term interference. And the people that are able to do that, and I'll just go back to Amazon before we finish. I mean, since its inception, its IPO in 1997, that stock has gone down 50%, six times Ben. If you got juked out of that stock at any one of those moments in your fear base, as your fear is taking over, you missed arguably one of the best stocks that have ever been created or better companies in USA.
Benjamin Huneke: (44:39)
They're amazing stats. If you missed the best a hundred days in the market in any given year, the value of staying invested and sticking to an asset allocation is difficult. So that's the overarching mantra we have with our clients.
Anthony Scaramucci: (44:52)
We'd love to get you back as we get to the end of the year. Certainly after November, the third Ben, there will be a new president or a new administration. It's one or the other, and we'd love to get Morgan Stanley and your take on what 2021 looks like post-election. So hopefully you'll come back on-
Benjamin Huneke: (45:11)
It seems far away, it just plain with everything going on, but I would love to come back. Thank you for having me.
Anthony Scaramucci: (45:16)
It does seem far away. There's no question about that, but it's only 90 days. And just remember, 90 days ago, it takes you back to May 8th. I mean, my God just think about how quick that flew by.
Benjamin Huneke: (45:31)
All right.
Anthony Scaramucci: (45:31)
Well, Ben, thank you.
Benjamin Huneke: (45:32)
[inaudible 00:45:32].
Anthony Scaramucci: (45:33)
Thanks for coming on. It's great to see you and we'll get you back on Salt Talks before too long.