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Operator
Conference Host
Good morning. On behalf of Morgan Stanley, I will begin the call with the following disclaimer. During today's presentation, we will refer to our earnings release and financial supplement, copies of which are available at morganstanley.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. To refer to our notices regarding forward-looking statements and non-GAAP measures, set up on the earnings release and strategic update. Within the strategic updates, certain reported information has been adjusted and is noted in the presentation. These adjustments were made to provide a transparent and comparative view of our operating performance against our strategic objectives. The reconciliations of these non-GAAP adjusted operating performance metrics are included in the notes to the presentation. On October 2, Morgan Stanley closed its acquisition of e-Trade, which impacts -over-period comparisons for the firm and wealth management. This presentation may not be duplicated or reproduced without our consent. I will now turn the call over to Chairman and Chief Executive Officer James Gorman.
James Gorman
Chairman and Chief Executive Officer
Thank you, Operator. Good morning, everyone. Thank you for joining us. I fully appreciate we're competing with Historic Day here, so I particularly appreciate you listening in. We will be brisk as we always try to be. Morgan Stanley delivered record results in 2020. We generated a narrow TCE of .4% while meaningfully driving our strategic vision forward. We successfully closed our acquisition of e-Trade, received an upgrade from Moody's to A2, were placed on review for upgrade a second time, and announced our intent to acquire Eden Fans. Then, last month, following the Federal Reserve's release of its second stress test result, we announced a $10 billion buyback program that we intend to execute in 2021. Our performance and competitive position serve as hard evidence that Morgan Stanley has reached an inflection point. John will discuss the details of this year's performance in a moment, but first let me walk you through our vision for the next decade and outlook focused on growth as outlined in our annual strategic update. This is something we've now done since, I believe, 2012. Let's turn to slide three. Our strategy revolves around demonstrating stability in times of serious stress and delivering strong results when markets are active. 2020 for sure tested this thesis. In a rapidly evolving operating environment, we responded to heightened volatility and supported open and functioning markets and client needs. We delivered record revenues of $48 billion while remaining disciplined in our risk management. Those revenues, by the way, are up from $34 billion in the time period 2010 through 2014. Turn to slide number four. We enhanced our positioning in areas of secular growth with several strategic acquisitions. In 2019, as you know, we advanced our workplace offering with the acquisition of Soling. And in 2020, we took a leap forward when we announced our acquisitions of eTrade and Eaton Vance. Combining with eTrade positions us to reach clients in various stages of wealth accumulation in a scalable economic way. eTrade's technology, products, and innovation mindset enhance our growth model. Further, eTrade serves the younger demographic who are on average over 10 years younger than those we've historically served. And we can continue to service as their needs become increasingly complex. With Eaton Vance, we will create a leading asset manager of scale. Eaton Vance brings new investment capabilities to our platform and leading positions in secular growth areas, particularly customization and sustainability. The deal will also expand our client reach. Combining MSIM's robust international distribution with Eaton Vance's strong US distribution. Please turn to slide number five. Having experienced periods of fragility, healing, and stability, our firm is now at an inflection point. The next decade will be characterized by growth. Our growth drivers span across all three of our business segments. We'll focus on gaining market share, expanding and deepening our client relationships, realizing acquisition synergies and operating leverage, and finally returning capital to our shareholders. Please turn to slide six. Scale and our interconnected businesses are the foundation for our first growth driver, gaining market share. Our integrated investment bank produced $26 billion in revenue on a pro forma basis. Our wealth and asset management platforms is among the largest globally with over five trillion in combined assets. Our breadth and depth of product offerings and services have enabled us to gain an increased share of client wallet as you can see on slide seven. Our segments are working together to deliver holistic client coverage and a capturing asset and revenue growth. In 2020, international securities generated over 300 million of revenues from transactions through wealth management referrals. Wealth management in turn gained 20 billion of client assets and investment management saw six billion of net and commitments all from institutional securities referrals. Our second growth driver, expanding and deepening our client base begins with institutional securities on slide eight. Our integrated investment bank benefits from our coordinated and client focused approach. We built revenues meaningfully to a record $26 billion in 2020. The result of this growth coupled with risk and expense discipline was an operating margin of 35%. Turn to slide nine which talks about our wealth management business. With the acquisition of eTrade, we are now a top three player in each of the key channels in which investors manage their finances and each presents unique growth opportunities. With our increased capabilities, we can deepen client relationships and provide more services to millions of households. If we look at eTrade on slide 10, you'll see the business had a remarkable year in 2020, setting new records across all material metrics. Unique backdrop, dramatically accelerated digital adoption and meaningfully increased levels of engagement versus prior records trading activity more than tripled and net new assets more than doubled. Deposits reach record levels. Extraordinary growth versus prior records is hard additional evidence that our decision by eTrade was indeed the right one. On slide 11, we illustrate our extraordinary accumulation net new assets bringing over $200 billion of assets this year new to our firm. That's 6% of beginning period assets on a pro forma basis. We've invested heavily over the years building our modern wealth strategy, enhancing our technology and building new businesses and the addition of eTrade will only help. This year's net new asset growth was remarkable and while net new assets tend to fluctuate obviously in any year, this is and this was likely the high end of what is a likely range, we still expect net new assets to remain well above historic levels. On slide 12, every year for the past decade our revenues have increased and with eTrade daily revenues will be significantly higher in the future. In 2020, 65% of trading days saw revenues in excess of $70 million. That was compared to just 2% only four years ago. Let's talk about investment management on slide 13. With our announcement to acquire e-Invance, we will create a premier global asset manager with $1.4 trillion in assets under management. Since 2017, Morgan Stanley investment management has grown assets under management by over $360 billion and both MSIM and Eaton Vance have each individually attracted industry leading long-term net flows over 20%. We're really excited about this transaction and the integration planning is going well. Eaton Vance's businesses remain strong with increasing assets under management through the end of December. We expect to close the transaction no later than early in the second quarter. Slide 14 shows the power of our wealth and investment management platforms when taken together. On a pro forma basis, we will have over $5 trillion in client assets creating further revenue opportunities. Our efforts to enhance and build up these businesses have led to strong growth. Pro forma client assets are more than double the amount we oversaw in 2014. Insistent with our predominantly advice driven business model, revenue on these assets, expressed in basis points on the right-hand side of the page, is materially higher than our three larger competitors. Now let's turn to slide 15, which includes an update on the acquisition synergies we expect to realize. The cost synergies we previously outlined are definitely on track and on the funding side with the additional liquidity and deposits we've added since the announcement, we expect 100 million more in synergies than originally projected. We also expect to capture significant incremental revenue opportunities through these deals and they're outlined in a little bit of detail down the right-hand side of this slide. So turning to 16, expense discipline is a fundamental tenet of the way we manage Morgan Stanley and has enhanced record pre-tax profits and you see our efficiency ratio has come down from 2014 at 79% to just on 70% this past year and obviously that has driven the pre-tax profit expansion. So our fifth growth driver is highlighted on page 17. Over the past several years we've consistently improved our returns despite holding material excess capital. We're excited about the opportunity to return that excess to shareholders and announced a 10 billion dollar buyback program for this year. We restarted our share of repurchase program this month and plan to increase our dividend when restrictions are lifted by the Federal Reserve. I'll now conclude with our updated strategic objectives which are shown on slide 18. While this year will be a transition year as we absorb two major acquisitions, our focus remains on positioning Morgan Stanley to achieve our long-term strategic targets. Our long-term aspiration and frankly our belief is that wealth management will generate a margin over 30%. By 2022 we expect by 2022 and in that period we expect to range from 26 to 30% as we continue to work through the e-trade integration. We also plan to invest in many aspects of our business for growth but we'll balance this with this one. In so doing we're keeping our long-term efficiency ratio below 70% and within the range 69 to 72 over the next two years. Finally our long-term aspiration for ROTC is indeed to exceed 17%. How quickly that occurs depends not only on our business performance but also of course on capital distribution. In the meantime we raised our two-year target to the range of 14 to 16%. As always these targets are subject to major moves in the economic outlook and any big changes in the political and regulatory environment. However based on what we see now we fully expect to achieve these as stated. That concludes the strategic part of the conversation. I'll now turn the call over to John who's going to go through the fourth quarter and annual results and together we look forward to taking your questions. Thank you.
John Mack
Chief Financial Officer
Thank you and good morning. The firm produced revenues of 48 billion dollars in 2020 records both with and without e-trade. Saw continued momentum into the fourth quarter with revenues of 13.6 billion. Dynamic markets, incredible volatility and consistent client engagement across all three businesses drove results. Excluding e-trade integration related expenses our ROTC was .7% and .4% for the fourth quarter and full year respectively and EPS was a dollar 92 and 658 respectively. He continued to deliver on operating leverage in 2020 led by institutional securities. Non-compensation expenses for the year increased 15% driven by increased volume related expenses and higher credit provisions. These increases were partially offset by a decrease in marketing and business development. Compensation expenses increased 11% on a full year basis on higher revenues. Revenues for the full year were up 16% resulting in efficiency ratio of 70% down from 73 in 2020. Now to the businesses. In institutional securities our business achieved various records throughout the full year. Our revenues were 26 billion dollars 25% higher than our previous best year. While all regions contributed to the results growth in Asia was a standout. Revenues were seven billion dollars in the quarter marking the strongest fourth quarter in more than 10 years. The traditional seasonal slowdown was not experienced and clients remained active up until the week of Christmas. Investment banking revenues were 7.2 billion dollars for the full year 26% higher than 2019 driven by record underwriting revenues particularly equity. In response to the COVID environment the year saw a rolling opening of markets beginning with debt and rescue financings next with equity and very recently leveraged loans and corporate M&A financing. Quarterly results were the strongest in over a decade generating revenues of 2.3 billion dollars 46% higher versus the prior year driven by record underwriting and advisory results with each region contributing revenues well above average run rates. Overall the investment banking pipeline continues to be healthy across products. The pace of M&A announcements has accelerated and client and boardroom dialogue is active. Equity issuance remains robust with a strong backlog from IPOs driven by leadership in health care and technology and follow-on activity notably in the Americas and Asia. After a record-breaking year in investment grade and high yield debt markets strategic activity should support increased acquisition related financing. In equity sales and trading we remain number one globally for the seventh consecutive year. Full year revenues of 9.8 billion dollars increased 22% from the prior period. This represents the strongest annual result in over a decade. This year's market backdrop was unprecedented and the strong performance across products reflected heightened client activity amidst elevated volatility and a double digit increase in global market volume. Fourth quarter revenues of 2.5 billion dollars and full year results were robust across products and regions with the biggest growth drivers from derivatives and Asia. Fixed income sales and trading revenues were the highest in over a decade increasing 59% to 8.8 billion dollars for the year. Clients were highly engaged in a year marked by higher volumes and growth. The quarter year results in a year of increased growth in the market and increased market volatility, active capital markets and wider bid-ask spread. Fourth quarter revenues of 1.7 billion dollars increased 31% year over year. Results in the quarter and full year were led by credit and foreign exchange. For the full year Asia showed particular strength. Across other sales and revenues results improved versus the prior year. Increased primarily reflected lower provisions for loan losses and movements related to deferred cash compensation plans. Our ISD credit portfolio continues to perform well. Over 90% of our ISD loans and commitments are investment grade or secured. ISD loans and lending commitments are up 9 billion dollars this quarter as we continue to support our clients while our funded ratio on our corporate book has continued to decline and is now close to pre-pandemic levels. After building our allowance for loan losses throughout the first three quarters it was essentially flat in Q4. ISD provisions were 14 million dollars while net charge-offs were approximately 40 million dollars primarily related to one commercial real estate loan secured by a hotel. While risk remains concentrated in our vulnerable sector portfolio the portfolio continues to decline. We de-risked this portfolio by close to 2 billion dollars this quarter and it now represents less than 10% of our portfolio. Over 90% of this portfolio like our entire ISD portfolio is either investment grade or secured. Our reserve coverage remains stable and forbearance for the ISD portfolio continues to decline. Turning to wealth management on October 2nd we closed our acquisition of e-trade. This quarter's results include the combined business financials with virtually all of the e-trade revenues in transactional and NII. Making comparisons to prior periods are difficult so I will focus my comments on Q4 and how we are positioned for 2021. We have also included some new disclosure in the supplement on page 7 regarding the combined business. In the quarter revenues were 5.7 billion dollars excluding integration related expenses of 231 million. The PBT margin was .9% and full year margin was 24.2%. The underlying drivers of this business remain extremely strong reflecting comprehensive capabilities and strong client engagement and activity. We saw record fee-based flows of 77 billion dollars for the year and fee assets are now 1.5 trillion. We added 18 billion dollars of loans or 22% growth
in
John Mack
Chief Financial Officer
2020 and loans are nearly 100 billion dollars. Asset quality continues to be excellent and loans in forbearance are under 400 million dollars down from approximately 2 billion at the end of Q1. Deposits continue to grow and were supplemented by 54 billion dollars from e-trade and are at 306 billion. The network generated net new assets of 66 billion in the quarter and on a pro forma basis over 200 billion in the year. We remain a destination of choice for advisors and continue to add strong teams and retain our productive advisors. These underlying fundamentals and the realization of synergies position us well for the future. In the quarter asset management fees were $3 billion benefiting from higher asset levels and $24 billion of fee-based flows. Transaction volumes remained elevated and revenues were strong even after excluding approximately 350 million dollars of DCP as clients were active across both advisor-led and self-directed channels. Net interest income was 1.2 billion dollars in the quarter and benefited from the incremental deposits and investment portfolio that came with e-trade. This is a reasonable exit rate to inform 2021 and includes the purchase accounting adjustments associated with premium amortization which is approximately 50 million dollars a quarter. This year NII will grow due to the realization of our funding synergies and lending growth with limited impact from rates. On funding synergies we onboarded approximately 4 billion dollars of deposits that were previously swept off e-trade's balance sheet in the back half of Q4 and we expect to onboard approximately 20 billion dollars in Q1. As we invest these deposits and shed higher cost wholesale funding we would expect to realize 80 percent of our revised higher funding benefits in NII in 2021 with a full impact of these actions selected in Q2. On lending we continue to see strong lending demand and expect approximately 10 percent loan growth to benefit NII. Lastly on rates we do not anticipate any change to policy rates in the near term. However we will benefit from the eventual normalization of rates. The acquisition of e-trade increases our U.S. bank's sensitivity to rates and a 100 basis point increase in rates would now contribute an estimated 1.5 billion of additional NII compared to the estimated 1 billion we disclosed in our Q prior to completing the acquisition. We continue to expect 800 million dollars of integration costs over three years with approximately 40 percent to be realized this year. Following the close of the transaction we took actions to realize the 400 million dollars of cost synergies we outlined. Our efforts have been aimed at limiting disruption to the customer experience during the integration and will be measured. 2021 we will be exiting the e-trade consolidating our bank entities and integrating HR and finance systems and we would expect to realize approximately 25 percent of the cost energy during the year. Investment management reported revenues of 1.1 billion in the fourth quarter representing the second highest quarterly level in over a decade. For the full year revenues were 3.7 billion dollars in line with the prior period but reflecting a greater contribution for more durable management fee revenues and less from carried interest. Total AUM rose to a record high of 781 billion of which long-term AUM was also a record at 493 billion. Long-term net flows were 8.5 billion in the quarter. Our global equity strategies continue to deliver strong performance and attract positive flows. Total net flows were 25 billion dollars. The global nature of our platform remains an advantage as inflows across regions led to record long-term net flows of 41 billion dollars for the year and an annual long-term growth rate of 12 percent. We are excited about the transaction with Eaton Vance across businesses and strategies Eaton Vance's assets under management across excuse me increased by over 65 billion dollars since October. The overall tone of the business is strong and their momentum continues. Turning to the balance sheet total spot assets were 1.1 trillion and standardized RWAs increased to 454 billion reflecting high levels of client activity and the closing of e-trade. Our standardized CET1 ratio was flat to the prior quarter at 17.4 percent. Our tax rates were 23 and 22 and a half percent for the quarter and full year respectively. We expect our 2021 tax rate to be in and around 23 percent which will exhibit some quarter to quarter volatility. We are pleased with our strong performance this year. Our franchise is better positioned for growth than we have been in well over a decade. We enter 2021 with strong asset levels, healthy pipelines, engaged institutional and retail clients and an extremely strong brand. We're confident in our ability to deliver on our objectives. With that we will now open the line to questions.
Operator
Conference Host
Thank you. To ask a question you'll need to press star one on your telephone. To withdraw your question press the pound key. In the interest of time we ask that you please limit yourself to one question and one follow-up. Our first question comes from Brendan Hawken with UBS. Your line is now open.
Brendan Hawken
UBS
Good morning. Thanks for taking my questions. I just wanted to start on the net new asset disclosure that you guys provided here this quarter for the first time. Thanks for that. It's very, very helpful. It seems as though the net new asset growth, the organic growth profile in the wealth business accelerated here in 2020. What do you think is driving that? Is that capturing a greater wallet share of existing clients? Is that an expansion of the client base? And it seems as though the metric excludes fees and commissions. Do you have an estimate of what that would mean for a headwind to that growth rate? I believe most of the other competitors disclose it in the net of those fees. We just want to try and make it like for like. Thank you.
James Gorman
Chairman and Chief Executive Officer
Let me start and John will talk about some of the disclosure stuff. As you point out, Brendan, it's the first time I think we've done it in many, many years. We just thought it was time to reflect the fact that the business has unbelievable growth. We hear about a lot of competitors and a lot of digital players with frankly in absolute dollars modest assets and we were able to bring in 200 billion in a year. Now part of that is obviously it's pro-formal basis. Part of that is if you look at what E-Trade is doing, they're doing great. Part of it is if you're a net attrition of financial advisors, you will be a net attrition of assets on those advisors books. For the first time in 20 plus years I've been doing this, we're not in net attrition, which is interesting given the IFA channels continue to grow, but they're not growing from us. So we're keeping assets of our advisors. We're gaining assets from new advisors. Through the workplace initiatives, through Solium and E-Trades, we're gaining assets from the conversion and keeping of those assets at a higher rate than we were. So it's a whole variety of things that have been done within the wealth management business to look for ways to continue to accelerate client asset growth at the firm. And it's no single thing. I do think 6%, as I've used the expression before, it's a sporty number, but it's a long way from the 2% or the -4% we're operating at. And I think it will be elevated. I don't think we're going to go back to 2%, but maybe 6%. That feels high. It's certainly best in class for what the street offers. But maybe John has more on the disclosure.
John Mack
Chief Financial Officer
Yeah, so the two critical exposures, the net new assets and then the fee-based flows. And you can see from the footnotes on the net new assets, which is a concept of the assets that we bring into the organization, net of the outflows that does not exclude the fees. You can see the fees on the asset baseline in the disclosure, about $10 or $11 billion. The fee-based flows do exclude that as a function about how much fee-based assets that we have that are generating a return on those asset base. Hopefully that clarifies the question. And I think for us, the net new assets, given the different business models across the different business models, it reflects most people don't have the level of asset-based fees that we do, and we thought it was appropriate to disclose it that
Brendan Hawken
UBS
way. Yeah, that's great. That's a very helpful clarification and agrees the growth rate looks robust. I mean, you regularly hear about how the traditional wealth management firms are just the providers of share and certainly a single-digit growth rate does not suggest you're providing a seeding share to anybody. So, agreed there. And then for my follow-up, sort of a related question, one of the things that a lot of people and myself included think is one of the more exciting opportunities for growth in the wealth business is the stock plan business, where you really just have a strong position competitively. And you flag a lot of that in the deck, which is really helpful. You talk about the retention opportunity of the 15-plus percent, which is what eTrade has pointed to historically. What's the plan to integrate the stock plan platforms? How long do you think that might take? And is it right when we think about the opportunity set, you've got the $435 billion of unvested assets. My guess is that's the opportunity set. About how much of that tends to vest for years? About a quarter or 30 percent. And it's right to think about that as evergreen, right? Like invest, and then they're replaced with new awards in subsequent year. Sorry about the multi-part question, but I think it's an important one. That's okay.
John Mack
Chief Financial Officer
So we have integrated the sales team. We're going to market to our corporate clients with a consolidated sales effort. As you would expect, we're going to be very mindful of the integration of these platforms. I would highlight that they were certainly different emphasis in terms of big companies, small companies, private companies. And we will converge those platforms over time and upgrade them both to sort of bring the best of both of those platforms together. You're right. The existing opportunity is the $435 billion of unvested assets and roughly 5 million participants. Our expectation is we will continue to grow the number of corporate relationships we have, and therefore the number of participants. And we've seen good closure rates since announcing both the Solium transaction and the E-Trade transaction. So we feel very good about the number of new corporate relationships we have in that channel. And then lastly, on the $435, give or take 25 or 30% of that best each year. I think that's a pre-tax number. So clearly there's tax impacting that. But as you say, our expectation is that number will continue to grow as we bring on more and more corporate relationships.
Brendan Hawken
UBS
Thanks for the call.
Operator
Conference Host
Thank you. Our next question comes from Mike Mayo with Wells Fargo Securities. Your line is now open.
Mike Mayo
Wells Fargo Securities
Hi. Well, you clearly gained share this quarter of the year in capital markets and trading. Aside from your gaining share, what is your outlook for the industry wallet? As you know, it shrunk in trading for a decade. And now it may or may not have turned more permanently. So some banks say we're planning for 2019 levels for trading. Some think it can maintain this pace. Some say it's in between. Kind of where do you fall out and why? What do you see as the structural changes?
James Gorman
Chairman and Chief Executive Officer
Mike, it's very difficult to say. I mean, just look at what we've been through in the last 12 months and look at activity in the first quarter versus the second quarter and then where the year finished. So clearly there is a lot of activity in the market. There is enormous fiscal stimulus. Rates remain very low. I think the global economies are recovering. And I think the vaccine, if we get in the US to a million doses a day for the next 150 days would be spectacular. So there are a lot of industries that are continuing to look at share issuance, new IPOs coming, recapitalizations of different kinds, raising debt. So there's a lot of market activity, I think, in the reasonable near term. Whether it is at the level of 2020, I mean, you'd have to bet against that just on pure odds. Less than 50%. I think, you know, but who knows? I mean, the year has started off strong. And, you know, we count them one day at a time. And, you know, the year has started off strong. The markets are active. The economies are recovering globally. Your administration has come in. It looks like we had a peaceful transition hopefully today. So, you know, I'm quite optimistic about it. I can't put a pin to say exactly where we're going to end up. But, you know, we're clearly gaining share. Our fixed income franchise has well recovered from the 2015 restructuring and 2012 lows. Equities bounced, you know, and retained their number one spot again in what has been a growing equity fee pool. And, you know, clearly with the banking revenue is above 2 billion for quarter, there's a lot of M&A activity and a lot of underwriting activity. So, I'm pretty optimistic. I mean, I can't put an exact number on it. But I certainly don't feel like we're going to make a major back step at all here.
Mike Mayo
Wells Fargo Securities
On that last comment, in terms of backlogs, are they up -by-quarter, near record, down?
John Mack
Chief Financial Officer
Yeah, generally, I think from my comments, Mike, we describe them as healthy across all products in all regions with IPOs as a standout. As I said, M&A activity, dialogues, very active, pipeline, very healthy. So, James said a very constructive start to the year with very healthy pipeline.
Mike Mayo
Wells Fargo Securities
All right. Thank you.
Operator
Conference Host
Thank you. Our next question comes from Christian Bollou with Autonomous. Your line is now open.
Christian Bollou
Autonomous
Thank you. And good morning, James and John. Maybe back on wealth management organic growth, and again, echo the earlier comments, really appreciated your information. But, James, you seem to be really playing down the 6% this year as not sustainable. So, I guess, can you just maybe help us understand what exactly was elevated in 2020? Was just overall industry was elevated? Was there something more specific to Morgan Stanley, like higher recruiting? I'm just trying to understand why you think it was elevated. And then, maybe more importantly, just looking forward, give us a sense of what you think the business can do sustainably, a sort of range for organic growth that you would expect for the business. Thank you.
James Gorman
Chairman and Chief Executive Officer
Christian, you probably know me well enough by now to know I'm not going to project a timeline based upon one point of data. Listen, we've had a decade of growing net new assets around 2, 3, and then 3, 4%. Clearly, E-Trade has fast-growing asset growth capability that adds enormously. I think net positive financial advisor, our actual numbers of financial advisors went up this quarter, I think, for the first time in years. So, I just trend to the conservative until I see more data. And do I think it's going to fall back to 2%? Not at all. But, if we could lock in 6% for the next 10 years, and we're bringing 200 billion a year, I read about a lot of these online players have got $20 billion in total, and we're bringing $20 billion every five weeks. So, we're effectively creating these companies every five weeks. Now, if it's going to be 4.5%, 5.5%, I don't know. My instinct is 6% on 4 trillion is a lot of assets to bring in. And I think it's doable. I'm not saying it's not doable, but I'm not projecting that, and I wouldn't want to guide you to that. On the other hand, I don't think we're going back to where I think we've got a different kind of company. The reason the title of this presentation is called Morgan Stanley and Inflection Point, The Next Decade of Growth, is if there's one message I would like people to take away from it is we're in the growth phase of this company for the next decade. We've been in, as we said, from the crisis forward, sort of fragility, then healing, then stability, and we are unambiguously in a growth phase. We have the capital to invest in businesses. We're gaining share across our businesses. We've got scale in the key businesses. We've invested in a lot of technology improvements to the businesses to increase their efficiency, and I believe we're in a growth phase in this company. And one of those indicators of growth will be very strong net new asset growth.
Christian Bollou
Autonomous
Fair enough. Maybe switching over to capital, with the stock now trading well above book value, how are you thinking about prioritizing buybacks versus dividends? I think in the past you have spoken to an aspirational target of paying out all of wealth and asset management earnings as a dividend, so maybe just some updated thoughts around how you're thinking about that prospect, and again, buyback versus dividend conversation here.
James Gorman
Chairman and Chief Executive Officer
Well, the third leg to that conversation, very important leg, is investing in the business. You know, if we're going to grow, let's pretend we're growing, I don't know, net earnings of 10 billion, and we're paying our dividends at the moment of about 2.5 billion. So if we're doing a buyback this year of 10 billion, we're only eating into our buffer 2.5 billion a year, we're not going to chip away at it much. We're at 17.4, and I think the threshold is 13.2. I'm looking, John,
Devin Ryan
JMP Securities
13
James Gorman
Chairman and Chief Executive Officer
.2. Let's assume we carry what, a 50-hundred basis point buffer on our SCB, so let's assume we want to run a 14.2. We're at 17.4. We've clearly got some room to move. Obviously, we've got the Eden Vance move coming in, which affects those numbers about 100 basis points. So, you know, as I think about it, you know, I've described this before, half our company has that sort of yield component to it, very stable revenues and earnings, and we could clearly move the dividend higher and will once the regulators permit that. We have, clearly, we have the capacity. On the book value, yes, I would actually have preferred to be buying our class year when we were at $27. Unfortunately, we couldn't do that, but I'm not troubled by buying a little of the book value, and I don't think we can be too cute. We have a billion, eight billion, nine shares outstanding, obviously, through the issuance from the deal, so I'd like to get us back to a billion, five type range over the next few years, and we've got this capital. There aren't enough things we can invest, you know, 10, 15B in a year in the business, and generate the kinds of returns we expect to generate. So it's a mix of all three, but clearly, we'd like to see more action on the dividend. Clearly, we're going to be aggressively buying back and consistently, and clearly, we have capacity to increase our investment in the core businesses.
Christian Bollou
Autonomous
Great. I have a last problem. Thank you.
Operator
Conference Host
Thank you. Our next question comes from Steven Chuback with Wolf Research. Your line is now open. Your line is muted.
Steven Chuback
Wolf Research
Sorry, can you hear me? My apologies for that. I just wanted to start off with a question on funding and NII. You know, appreciate the disclosure on funding optimization and the drivers of some of the improved synergies from the initial guidance. Now, I'm curious how much room there is to cut deposit costs further. It looks like your wealth management deposit costs of 24 bips, it's just running well above peers. And just a clarifying question regarding the NII guidance, Sean, is the growth you're contemplating in 21, is that versus the 4Q20 base, which reflects full impact of the deal, or was that a guide versus full year 2020?
John Mack
Chief Financial Officer
I'll do the last question first, which is that it was based on the fourth quarter. So, sort of using a fourth quarter annualized as the right base to be thinking about. But again, we did have the full impact of both the transaction for the full quarter as well as the amortization of the premium from the investment portfolio. You're right. Our basis points, which were down 14 basis points for the quarter. We also saw an improvement, as you know, BDP or what we call our sweep deposits, obviously at a lower rate, basically at one basis points relative to our wholesale that costs about 100 basis points. So, part of the funding synergies is really coming from replacing those wholesale funding, CDs and other wholesale funding with the off balance sheet deposits that we're going to bring back on balance sheet. So, we started the quarter, I think about 65% of our funding and the deposits were sweep. We're now at 75%. We would expect about $15 to $20 billion of CD roll off. That's obviously based on the maturities. So, we continue to think that we can drive our average deposit costs lower as we continue to replace the wholesale with the incremental deposits
Steven Chuback
Wolf Research
from each other. That's great. And just for my follow up, big picture question, James, if you'll indulge me, I was hoping you could help us reconcile versus your prior target at 15 to 17% Rodsey. What rate market and capital assumptions are underpinning your 17% plus ambition? And I guess if we start to think about the inflection and growth that you cited and maybe even some tailwinds from normalization, just higher rates, which should be more than 100 basis point benefit, greater realization of revenue synergy opportunities, further progress on the SCB, the direction of travel there has been quite favorable. Now, the 17% plus longer term still feels somewhat conservative. I'm wondering from your perspective, do you see even in upper teens or a 20% plus Rodsey as a reasonable long term ambition, just given the significant transformation that's underway? Okay.
James Gorman
Chairman and Chief Executive Officer
You're beginning to replace Mike Mayo. He usually asks me that. What about the plus? What's wrong with plus? Plus means more. You can drive a truck through
Steven Chuback
Wolf Research
that range.
James Gorman
Chairman and Chief Executive Officer
You know, listen, I wouldn't put, I wouldn't try and model too much science into this. This is an expression of our aspiration. And as I said also happens to be our belief. It's not just Disneyland. We believe we will deliver these numbers. And for some of the reasons you list, rates being one of them obviously has a huge impact on this firm. But look at where we finished last year and what our numbers were. These obviously become very plausible. Whether it should be 17 plus, 18 plus, 19 plus, you know, listen, if we'd said to you three years ago, our aspiration was to have a 17 plus ROTC, you would have thought we were off the planet. So I'm very comfortable with these numbers. If we could achieve this, then obviously the stock sheet would be trading much higher than it is today. And embedded in it, we do do some math. We start with our budget. We start with our operating performance in 2018, 2019, 20. We look at our budget projections. We do sensitivities around revenues. We understand what our comp and non-comp look like over the next couple of years. Whether we have major litigation exposures or not, the integration costs that have got to work with us. And then we look at the capital question, which I discussed earlier, I think with Christian, on buyback dividend or reinvestment in the business and what our RWA growth is going to be in ISG and how that affects the CT1. You put all of that in a big washing machine and it's a number with a plus on it.
Operator
Conference Host
Thank you. Our next question comes from Glenn Shore with Evercore. Your line is now open.
Glenn Shore
Evercore
Thanks very much. James, I wonder if we can look at slide 14 and talk to something that comes up a bunch. You show your 5.4 trillion pro forma. If you look at that fee rate, there's only one other here on that top 10 that has a fee rate equal or better than yours. I think it's a good thing, but this comes up plenty, so I'd love to hear you talk about it. The sustainability of that fee rate, I don't see price pressure in the wealth management business, but people ask on it all the time. Just curious to get your thought process over the coming years and what's kind of embedded in those, your medium and long term targets implicitly with that. Thanks.
James Gorman
Chairman and Chief Executive Officer
I don't think you're going to see price compression of any significance across the wealth or asset management platforms. It's really a function of asset type. For example, the wealthy of the clients, if you have clients with $100 million, they're not paying 58 basis points. They're probably paying closer to 10 basis points. A client with $1 million is paying closer to 100 basis points. It depends a little bit on the business mix as to what revenue you generate on those assets. Obviously, some of the E-Trade active trading clients have got high velocity on them. They're going to have higher basis point numbers and a very passive position in restricted stock. A little bit of that is you've got to peel away what's going on under the numbers. If you brought a question, do I see price compression across wealth management? No, I don't. In fact, we'll probably generate more revenue as we build up the banking lending and deposit product. On the asset management side, I mean, listen, if you're driving performance in the active side, you can hold your fees as they are. The underperformers lose their assets quicker than they lose their fees. So I'm not terribly bothered about it. If you knew the names of the three above it, you'd probably guess them. There's a reason. They're more index oriented. It's a different business model. Now, we generate a higher revenue per dollar of asset, but we pay a higher revenue comp structure per dollar of asset. That's not exactly a 30, 40, 50 basis point win, as you know, obviously.
Glenn Shore
Evercore
Understood. Understood. Wanted to hear your words. Thanks. And then maybe if we just bridge the gap, I think another answer to this too, but this is a pretty strong environment. You can tell the baby trade, the adjusted margin in wealth management of 24% of the medium term target of two year target of 26 to 30. How do we get inside the range without help of rates? Because the Fed theoretically is on hold for a few years.
James Gorman
Chairman and Chief Executive Officer
Yeah, the business is growing. We had some, you know, we had some additional expenses this year, for example, we made more contributions to our overall philanthropic and charitable efforts, given what's going on with COVID. That cost is distributed across the businesses. We paid a one time bonus to all employees earning less than I think $150,000 who don't receive bonuses. Given the headcount in wealth management that disproportionately affects that business. So, you know, there's always a few things going on that, you know, a point of margin is worth about 45 million a quarter, I think, if I'm doing my maths right, you know, 18 billion, 180 million. So something like that. So it's not small numbers can move it around a point or two, but I think with increased growth, increased efficiency, better conversion of the assets, more asset flows in, generating this average 58 basis points is how you bounce between the sort of 20, what did we say, 24 to 30 range, 26 to 30, I'm sorry, 26 to 30. And, you know, depending on the environment, I mean, we've started the year strong. That probably helps a point if that held up. There you go.
Operator
Conference Host
Thank you. Our next question comes from Devin Ryan with JMP Securities. Your line is now open.
Devin Ryan
JMP Securities
Thanks. Good morning. First question, just want to come back to some of the questions on organic growth. And I like the slide nine that shows the $8 trillion in assets held away, essentially making the point that you already have, you know, the customer reach. And so just trying to think about whether you view kind of all of that as potential wallet that you can go after or set another way. Are there any products that maybe you don't line up with in that $8 trillion? And then, you know, as the firm becomes more connected through technology, which I think you guys have done a great job over the past couple of years, you know, how do you think about your strategies to connect with a greater percentage of that called $8 trillion? I know every business has a little bit of a different, you know, called sales process, but are there new strategies or even financial incentives that you can think about to really accelerate the penetration into that?
John Mack
Chief Financial Officer
Sure. I'll give that a crack. And, you know, we're not naive. We don't expect to have 100% of the wallet of all of our clients. So clearly, we don't expect to bring in all $8 trillion over time, but there's significant overlap, as you note, in these channels and in these wealth figures. We continue, as you saw, through the net new assets, as James mentioned. A lot of that was from existing customers consolidating their assets. A lot of that is being driven by the technology that we've made and the investments that we've made in the platform that help our advisors advise their clients. And we've seen people bring in more assets. So I think if you think about the opportunity set, I think we tried to line it up pretty well through the different channels on the workplace. I think it's really around retaining cash and retaining vested assets and then over time, growing the relationships, self-directed at a minimum. We've seen people leaving the e-trade platform as their needs got more sophisticated and they needed advice. We're clearly going to capture that top part of the funnel with our FAs, with the FA-led model that we have. So again, a real opportunity, and I like the way you described it. Just look at the numbers, two and a half million households, almost five million participants and 6.7 million households. The breadth and reach of the platform is quite large, and there is some overlap there, but it's a good opportunity to provide incremental services or bring in more assets from. In terms of kid activity, as you can imagine, we are collecting and analyzing data and working with our clients to try to figure out incremental needs and services and products that they need. With the e-trade acquisition, we bring on incremental digital capabilities, and as you can imagine, this year we're spending the year trying to figure out and piloting ways that we can work better and more efficiently with our clients. We're going to pilot around lead generation. We've defined the advisor group who's going to work with new clients. We've got scoring systems. We've got artificial intelligence trying to help predict what people are going to want, need, and next best action. So it's really a culmination of all the investments that we made, plus the digital from wealth, and we're going to use this year to try to get a very good understanding of our client base with these pilots and how we can provide incremental services going forward.
Devin Ryan
JMP Securities
Okay, terrific. Thanks, John. Just to follow up here, just on the core expense structure and trying to think about some of the benefits of 2020 with the pandemic that were deflationary. It would seem that as those benefits roll off, there's some inflationary aspects in the 2021 on a core basis, but longer term, obviously, I think we've learned a lot about the businesses through the past 12 months and opportunities potentially to drive some longer term savings or maybe core deflation in the expense structure. So I'd love to get some thoughts around how you guys are thinking about areas or opportunities to maybe drive more expenses out of the system based on what you've learned over the last 12 months.
John Mack
Chief Financial Officer
Yeah, I would say we're still learning. Crisis is not over. We clearly are hopeful around the rollout of the vaccine. I think there are going to be some takeaways around some of the digital client experiences that we've been able to do, the work from home that we've been able to do, but I think it's just a little early to start making those decisions. Let's get through the crisis first.
Operator
Conference Host
Thank you. Our next question comes from Mike Carrier with Bank of America. Your line is now open.
Mike Carrier
Bank of America
Good morning and thanks for taking the question. The strategic update and growth outlook are always helpful. Just on the efficiency ratio, you're given the 70% level in 2020 and realize strong revenues in this environment, but with e-trade and e-invance, you know, operating at a better ratio, I think the longer term wealth management margin improving, you know, maybe 600 base points. Just what drives the conservative outlook? Like are there areas that you want to assess significantly, you know, to continue to drive the growth or are there areas for, you know, potential improvement, you know, on that 70%?
James Gorman
Chairman and Chief Executive Officer
Okay, listen, I think we said under 70% after two years. So, you know, I don't think that's conservative. We were, Mike, we were at 79% just a few years ago and when I started, we were much higher. So, you know, the long term position is we'll run this place with a 30% margin plus. What happens in the next two years with, you know, the bouncing around the market? So it's, I don't know, maybe we're too conservative in the short run, but it doesn't change our behavior, I guess is what I would tell you. We are very determined to drive this company for growth and efficiency and for returns. That's been unambiguous for a decade now. So it doesn't change our behavior at all. It's just what do we think as reasonable people you should expect at a minimum to achieve in this time period? And that's what we try and put in the two year period. The longer term, we're much more aggressive, but, you know, deal with reality of two years. This year, as I said, if you annualize the way this year started off, we'll do better than,
Mike Carrier
Bank of America
we're Yeah, no, that makes sense. And John, just one clarification on the wealth management. You gave a lot of, you know, numbers on the outlook to give me a trade deal. I just wanted to clarify on the funding benefit. Did you say 80% in 21 and most of that by QQ and then same thing on the expense energy? I heard a 25 and a 40%. So I just wanted to make sure I had the right number, you know, just in terms of what you're recognizing in 21. Thanks.
John Mack
Chief Financial Officer
I think all of those numbers that you gave are correct. The funding synergies are really from this transition from the off balance to the on balance sheet and the runoff of the wholesale deposits. So again, that used more towards the back half and that, you know, the 80%. That's a, when you get into the second quarter, you'll be using a quarter number, not a full year, a full year benefit number and then 25% on costs and approximately 40% on the integration cost. So yes, those are the right numbers.
Mike Carrier
Bank of America
Guys, thanks a lot.
Operator
Conference Host
Thank you. Our next question comes from Jeremy Sicki with BNP Parabas. Your line is now open. If your line is muted, please unmute.
Jeremy Sicki
BNP Paribas
Sorry, apologies for that. I thought the comments on net interest income outlook and wealth management were very helpful. And I just wondered if I could get you to talk in a similar way about the asset management fees and the transaction revenues in wealth management because I, versus my estimates, I thought asset management was a bit below. Maybe that's a lag with the rising AUM, but obviously transaction revenues were very strong. So could you talk about those two revenue drivers within wealth management, please?
John Mack
Chief Financial Officer
Sure. On the asset management fees line, obviously the exit rate, as you know, we, you know, we get the benefit now for the full year of the trillion and a half in fee-based assets. You have averaging effect and exit effect in terms of 2021. So now at the 1.5 trillion assets, we'll also have the benefit of the net new assets that we bring in over 2021, though on an average basis. But you would expect continued growth, obviously, in that line. We had over 10% growth year over year in that asset management fees. And then on transactional, it's really going to be around client engagement and client activity levels. Fourth quarter, we benefited from elevated transactional. I did say that that was helped by the DCP number, which presumably may or may not repeat next year, but that the margin on that revenue, as we've talked about in the past, is virtually zero. And so transactional generally has been declining. We now have the E-Trade platform inside of Morgan Stanley. So the commission's based on their options, tradings, as well as some of the flow dynamics will aid that number. So we'll be at a new level, but generally that's going to be driven by volume related activity. And we'll have to see how it plays out. Recognizing the first 11 days have been pretty good.
Jeremy Sicki
BNP Paribas
Thank you. And just to follow up on the acquisition expenses, you break out the amount of acquisition related expenses in here. I just wondered if you could talk to us about the split between restructuring and amortization of intangibles. You said you're going to be amortizing the intangibles. I just wondered about the amount of that and where we see it.
John Mack
Chief Financial Officer
Sure. Why don't I just give you a few. So again, we issued $11 billion of equity or about 230 million shares, generated $7.5 billion of goodwill and intangibles. You'll see that in the first couple of pages of the supplement of that goodwill and intangibles. About $3 billion is going to be amortized at a rough rate of about 15 years, so about 200 million. And that would be allocated in the non-comps in the wealth segment.
Operator
Conference Host
Thank you. Our next question comes from Jim Mitchell with Seaport Global Securities. Your line is now open.
Jim Mitchell
Seaport Global Securities
Hey, good morning. Maybe we could talk a little bit about the momentum at E-Trade. I just want to confirm the numbers. If I looked at their second quarter sort of retail client base, this is around 5.8 million self-directed clients. And then I think at December, the fourth quarter was up to 6.7 million. Are those apples to apples? And if so, that implies quite a bit of net new account growth of close to 900,000. Is that, that's pretty good momentum and just maybe you could discuss what's driving that and how you feel about that going forward.
John Mack
Chief Financial Officer
Yeah, I mean, I think we tried to lay that out. As I said on page seven, you can see what pre-closing, so the September 30 number shows the self-directed assets within Morgan Stanley before the deal closed. So yes, the growth has really been in the E-Trade channel. Your number of about 900,000 is accurate. Again, I think from our disclosure going forward, we had to conform sort of definitions and whatnot. But they've had real strong growth with new clients given the activity levels this year. It's a number we, you know, you'll be able to track whether the self-directed channel is growing through that number going forward. I don't think we're going to be explicitly disclosing net new clients within the self-directed channel as we try to integrate and bring these two businesses together.
Jim Mitchell
Seaport Global Securities
Right, I imagine that's better growth than you anticipated. Does that give you even more confidence in the revenue synergies from E-Trade?
James Gorman
Chairman and Chief Executive Officer
Yes, yes and yes.
Jim Mitchell
Seaport Global Securities
Okay, great.
Operator
Conference Host
Thanks. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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