By Liz Hoffman 

The hottest new client on Wall Street: corporate human-resources managers.

Investment banks better known for big trades and megamergers are descending from the C-suite to pitch for business managing companies' employee-benefit programs. It isn't a glamorous business but it offers the type of sticky, predictable revenue that bank shareholders want -- and executives are willing to embrace -- as core Wall Street businesses struggle.

On Monday, Morgan Stanley agreed to acquire Solium Capital Inc., which manages employee stock awards for 3,000 companies. Goldman Sachs Group Inc. is building a wealth-management tool that it plans to pitch to corporate HR managers in the next year or so.

The competition is formidable. Retail brokerages such as Fidelity Investments, Charles Schwab Corp. and E*Trade Financial Corp. dominate the business, bundling employee stock grants, retirement plans, health-savings accounts and other services. They have added financial advisers, banking products and low-cost trades to win the loyalty of these customers.

Newcomers also must be mindful of Wall Street's reputation for unsavory sales practices, especially after the scandal at Wells Fargo & Co. Goldman's contract to build a financial-education website for Google parent Alphabet Inc. prevents the bank from pitching Google employees on savings accounts, loans or other products, according to people familiar with the matter.

Goldman has launched similar websites for 70 companies covering more than 1 million workers. They offer checklists and quizzes and assign workers a financial-health score that they are encouraged to improve.

Investment banks are looking for steadier sources of revenue to replace declines in securities-trading and principal investments. Goldman said it made 61% of its money last year from more-recurring businesses such as asset management and lending, up from 48% in 2013. Morgan Stanley has shifted thousands of clients from accounts that collect trading commissions, which increase in hot markets but fall in cold ones, into accounts that charge a steady annual fee.

Investors, still whipsawed from the financial crisis and the rogue-trading scandals that followed, assign higher value to these revenues. Executives hope that growing and highlighting them will boost their companies' stock prices.

Morgan Stanley is leading with its wealth-management arm, which manages about $2.3 trillion. It hopes to convert Solium's 1 million employee-clients into customers of that business, and has hired executives from E*Trade and Schwab over the past year to bulk up its appeal among rank-and-file employees, who tend to be younger and less wealthy.

"We were really good at capturing the C-suite," said Morgan Stanley Chief Financial Officer Jonathan Pruzan. "But we weren't touching the tens of thousands of incremental employees. Part of the appeal of this deal is access to those millions of customers."

Goldman, meanwhile, is seeking customers for Goldman's new consumer bank Marcus, whose growth is a key priority for its new chief executive, David Solomon. It has spent tens of millions of dollars on direct mail, advertising and referrals. Corporate contracts can bring in tens of thousands of potential customers in one swoop and generate revenue to boot.

"It's all about customer-acquisition costs," said Devin Ryan, an analyst with JMP Securities. "This is a way to get a foot in the door."

Both Goldman and Morgan Stanley are leaning on their investment bankers to make introductions at big companies. Those bankers are well connected in C-suites, especially in Silicon Valley, where employee stock grants are ubiquitous.

Those companies increasingly want more than record-keeping, and expect financial wellness and coaching, said Amy Reback, who runs Schwab's stock-plan service. "That's a big change from five or 10 years ago," she said.

(END) Dow Jones Newswires

February 12, 2019 19:11 ET (00:11 GMT)