Morgan Stanley brokers say they were underpaid 

Several Morgan Stanley financial advisers say they were underpaid thousands of dollars by the bank, which rebuilt its business on the back of the wealth management division where they work, insiders say.

Morgan Stanley said the problems were “one-off situations” and there was no “systemic” issue with the way it pays brokers, who advise affluent Americans on investments. Had the alleged problems extended throughout the 16,000-strong division, the underpayment could amount to tens of millions of dollars.

Starting in the spring of 2014, at least 10 brokers said they were owed money, people familiar with the issue said, and most were promptly paid once the bank was alerted.

The problem appears to have been caused by the way assets under management were calculated for certain accounts. If assets fell below a certain threshold, this reduced brokers’ pay, insiders said.

It is unclear how widespread the alleged problem is because most advisers are probably unaware that they should check their accounts. The employees who checked and complained only did so after being alerted to the issue by colleagues and then had to go through a multi-step process to see if they were owed money.

The sums at issue ranged from a few thousand dollars to five figures, according to people familiar with the matter. Employees may not have immediately realised that the money was missing because it represented small amounts in each pay cheque but added up over several years.

Wealth management has been central to the strategy of Morgan Stanley chief executive James Gorman to rely more on stable fees from that division rather than volatile trading revenues. Income from wealth management rose 16 per cent in the second quarter.

Other compensation issues have been raised at the wealth management unit. Brokers have been grumbling about a new deferred compensation plan introduced in December.

The bank appeared to be working on addressing the alleged underpayments after executives were informed in early 2014. Those notified include wealth management head Greg Fleming and other executives in his unit, along with senior legal officials, insiders said.

There were discussions on how to deal with the issue, including possibly informing the audit committee and potentially appointing an investigator, they added. Paul Gallagher, chief legal officer for the consulting group that covers wealth management, and John Pratt, another executive in the group, took part in meetings and conference calls discussing the issue.

But last summer, another conference call on the matter was cancelled, the insiders said. There has not been any bank-wide communication informing brokers that they should check to see whether they could be owed money. The inaction disappointed some employees.

Morgan Stanley said the bank had looked into the issue and found there was no systemic underpaying of brokers. It added that the formula for compensating brokers was complex and when issues were raised, they were reviewed, which at times led to extra pay.

There was no groundswell of complaints and the issue was not raised in the employment law department or in field offices, the bank added, saying there were no requests for arbitration related to the matter.

The problem was often in the way that certain family members’ accounts were grouped, in a process called householding, and how that affected the accounts’ assets under management. If assets in an account fall below a certain level, discount sharing kicks in, which reduces pay.

If a father and son have Morgan Stanley accounts, for example, they should be grouped together as a household. But in some cases, only the son was taken into consideration, which sometimes triggered the discount sharing.

The bank said it was up to brokers to group a household’s accounts properly and those who did not had misunderstood company procedures or had not read its policy.

Source: FT – Morgan Stanley brokers say they were underpaid

 

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