Morgan Stanley Tweaks Brokers’ Pay Plan for 2016
Minimal changes made a year after brokers grumbled over deferred compensation
Morgan Stanley is taking a gentler approach to its broker compensation plan for next year.
The securities firm will make small changes to its brokers’ pay plan in 2016, decreasing the number of years advisers will have to wait for their deferred compensation to vest and adding incentive bonuses tied to cash management and lending, according to documents viewed by The Wall Street Journal.
The changes are in contrast to a year ago, when brokers grumbled after Morgan Stanley slightly increased the amount of 2015 compensation that would be deferred.
“First, there are minimal changes,” Gregory Fleming, president of Morgan Stanley’s wealth-management arm, wrote in a memo to the firm’s 15,807 advisers earlier this week. “Finally and importantly, we made no changes to how [financial advisers] are paid that could distract them from focusing on better serving our clients and growing their practices.”
In his memo, Mr. Fleming appeared to acknowledge the earlier discontent. “The 2016 plan incorporates a lot of advisor input and feedback and meets a number of critical objectives that were conveyed to us,” Mr. Fleming wrote.
Late each year, brokers at the major firms—Morgan Stanley, Merrill Lynch, UBS Group AG’s U.S.-wealth arm and Wells Fargo Advisors—brace for changes in how they will be compensated in the following year. The companies typically make varying changes to how they pay their brokers, which can include changes to the so-called pay grid brokers use to calculate their income and the bonuses used to encourage them to push certain services.
The changes can be dizzying for brokers. However, this time Morgan Stanley opted for a simpler approach. It isn’t changing the pay grid that calculates the bulk of an adviser’s compensation. That will continue to range from 28% to 55.5% of qualifying revenue.
Morgan Stanley is the first of the four big brokerages to provide details of its 2016 compensation plan.
In 2016, Morgan Stanley will shorten the vesting time for the cash component of its advisers’ deferred compensation by two years. Advisers will receive 75% of their deferred compensation in cash which vests in six years instead of eight. The remaining 25% of their deferred compensation will continue to be paid in Morgan Stanley stock, which vests in four years.
Besides that, Morgan Stanley is adding a new incentive award to grow its cash-management business. It is offering to pay between $5,000 to $50,000 to advisers who get their clients to have an average daily cash balance of $50,000 or $5,000 a month in direct deposits with Morgan Stanley; use services like debit cards, online bill pay or a Morgan Stanley-branded American Express card; and maintain these initiatives for three consecutive months.
Morgan Stanley will also continue to pay a lending bonus of up to $202,500 to advisers who offer securities-based loans, mortgages and other types of debt to clients.
Brokers sometimes bemoan having to now offer banking products, something each of the brokerages emphasize, following the financial crisis as they were bought by banks or looked to build out their own banking arms.
One Morgan Stanley adviser in the Midwest, who was pleased overall with the 2016 compensation plan, said he didn’t expect to start calling clients to offer them credit cards or online bill pay services, saying he would rather continue to focus on financial planning and investment services.
However, Morgan Stanley is also offering incentives to the client-service associates who work with brokers. They can earn between $1,250 and $12,500 for cash-management growth and up to $10,000 for lending, an increase from a $2,000 ceiling last year. The Midwest broker said he liked that approach and would encourage his associate to work toward meeting those goals.
Those carrots are being dangled to spur advisers to help capture more of clients’ assets and build out Morgan Stanley’s bank, which had around $139 billion in deposits at the end of September.
“We continue to make private banking services our top strategic priority,” Mr. Fleming wrote to advisers.
Expanding Morgan Stanley’s bank is an important part of Chief Executive James Gorman’s strategy to grow the company’s wealth unit. Mr. Gorman told analysts in July that he aimed to “improve margin…by building out the bank” while keeping the overall size and scale of the wealth unit in place.
Source: WSJ – Morgan Stanley Tweaks Brokers’ Pay Plan for 2016
