How AI and Tokenization Could Reshape Wealth Management

Betsy Graseck and Michael Cyprys explore how AI could expand advisor capacity and tokenized assets could grow into a $2.3 trillion market by 2030.

Read more insights from Morgan Stanley.

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Betsy Graseck: Welcome to Thoughts on the Market. I'm Betsy Graseck, Morgan Stanley's Global Head of Banks and Diversified Finance Research. 

Michael Cyprys: And I'm Mike Cyprys, Head of U.S. Brokers, Asset Managers, and Exchanges Research at Morgan Stanley. 

Betsy Graseck: Today, we're looking at the next phase of growth across asset and wealth management – and how tokenization, AI, and changing investor flows could reshape the industry. 

It's Thursday, October 1st at 9am in New York City. 

Assets under management, or AUM, are near record highs across the globe, with a lot changing beneath the surface. Now, much of the recent AUM growth has come from markets rather than from net new client flows. And meanwhile, fees do remain under pressure. 

At the same time, technologies like AI and tokenization are creating new opportunities for both asset and wealth managers. Our base case has tokenized real world assets growing from roughly [$]40 billion today to about [$]2.3 trillion by 2030. 

Mike, let's start with tokenization. What are the use cases that matter most near term? 

Michael Cyprys: So, as we think about it, there's a number of use cases that we see. The most compelling ones really are around cash treasuries and collateral. Take for example, earning yield. Some tokenized funds allow you to earn interest by the minute or the second that is invested rather than having to remain invested by that 4pm cutoff that is the case today. 

Another benefit is allowing collateral to move around a lot more easily, and this can help support a shift toward 24/7 markets. So, if securities can trade 24/7 – or derivatives – you may also need the cash leg of that transaction to keep pace. Right now, there are certain futures contracts that do trade over a weekend, but those positions do need to be pre-funded on Friday. 

So that's going to limit perhaps the full uptake for that of 24/7 until you can get the movement of the collateral to keep pace. And that's where tokenization can come in to help solve a real market need. 

There's also trapped collateral that's just sitting around the world, where institutions and corporates just keep pockets of liquidity in different places just in case they need it at a moment's notice. There’s a cost to that while it sits idle. But tokenization can allow for just more just-in-time movement of money, say with tokenized deposits, tokenized money funds, or stable coins. 

And another use case is around investors outside the U.S. that may not have as easy access to U.S. markets. But tokenization can help lower barriers, reduce frictions, and allow for greater access to U.S. market exposure. Private markets get a lot of attention, but we think that's maybe a little bit further out. 

So, to put some numbers around this, today there's around [$]40 billion of tokenized real-world assets. So, think tokenized stocks, bonds, funds. In our base case, we could see that growing to about [$]2.3 trillion by 2030, with a vast majority tied to these collateral mobility and reserve and treasury management use cases. 

Betsy Graseck: Pulling up a notch, we are expecting assets under management to reach about [$]247 trillion by 2030. But revenue growth is expected to lag asset growth. Mike, what really separates the firms that can grow above market trends you expect? 

Michael Cyprys: Yeah. So, as you said, most of the growth is going to be driven by market beta, right? So, we have expectation for about 9 percent growth annually in assets under management for about $160 trillion globally today to about $250 trillion by 2030. We expect about three-quarters of that growth rate comes from market beta, which leaves you around 2.5 percent for organic asset growth. 

So, growing just AUM with the market is not going to really be enough to differentiate. And so, as we think about, you know, how one can differentiate? First, I think it comes down to where one is positioned across the industry. We do see flows concentrating in passive solutions and selected private markets, and the economics can be pretty different there as well. 

Another way to differentiate is through distribution. Wealth, retirement, model portfolios, customized solutions, all of those channels are becoming much more important. And so, you want to be closer to where that asset allocation decision is actually getting made. 

And another point of differentiation is around operating leverage, and that's where AI comes in, which I'm sure is a topic we're going to get to in a little bit. That we think can help allow money managers to expand research coverage, can allow salespeople to cover more clients, allow for adding more products and customization without adding necessarily a lot more people and cost at the same rate. 

So, look, bottom line, I'd say, we think above market growth from having the right products, the right distribution, getting them in front of the right clients, and the technology to scale that just a lot more efficiently. 

Betsy Graseck: And how important is that AI tool going to be, in your opinion, for separating yourself from the pack? And is it more top-line generative or cost efficiency generative? 

Michael Cyprys: I think it's critical. It's both. I think it changes