Morgan Stanley Tweaks Brokers' Pay Plan for 2016
November 20 2015 - 3:02PM
Dow Jones News
By Michael Wursthorn
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.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 20, 2015 14:47 ET (19:47 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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