2020 Comp: Morgan Stanley Raises Pay Hurdles, Intensifies Financial Plan Push
(Clarifies that Morgan Stanley has changed the thresholds for its grid levels, affecting about one-third of its brokerage force.)
Morgan Stanley broke with recent big-firm tradition on Tuesday, telling its more than 15,000 advisors that many of them will have to generate more revenue in 2020 to qualify for the same payout percentages that they are earning this year.
For example, the lower mid-range of brokers who now keep 41% of customer revenue for producing $485,000 to $600,000 annually will have to generate $535,000 to $660,000 in the new plan. Those who now keep 49.5% when they hit the $1.8 million-to-$2.4-million range will have to generate at least $2.0 million, waiting until they reach $2.65 million to hit the next level up. The change, which takes effect in April, will affect about one-third of the wirehouse’s advisors, according to the sources.
The change is the first that Morgan Stanley has made to brokers’ core payout formula in three years. Other so-called wirehouses have similarly refrained from changing the grid for at least that long, fearful of antagonizing their sales forces at a time when brokers have had to accommodate to new growth, compliance and practice management changes.
Executives believe that compensation should not be indexed solely to market gains, said one of the people familiar with the new program. And market gains may be harder to come by, Vince Lumia, head of “field management” for the biggest wirehouse by brokerage force, wrote in a memo introducing the new plan.
“Yesterday, the Morgan Stanley Investment Strategy team issued their 2020 market call which predicts that next year and the years that follow will be more challenging from a return perspective than this past decade,” he wrote. “In other words, now more than ever, our Modern Wealth strategy, centered on a financial plan, will help ensure that you serve your clients better than anyone else in the industry.”
The 2020 plan intensifies the firm’s goal of having advisors create such plans, in the belief that customers will add money to their accounts if they have clear goals. It also increases pressure on brokers to stop working with clients who keep less than $250,000 at Morgan Stanley.
Brokers currently receive a 25% payout on such “small accounts” but can collect full grid payout for each household account that has a plan. In 2020 brokers will collect only 10% on small accounts that have no financial plan.
Morgan Stanley also is requiring its brokers to share in the sting of lower interest rates. Brokers currently receive 15 basis points of the amount that a customer deposits into cash products such as money markets and sweeps of cash from their brokerage to bank accounts. The new plan is reducing the pay to 10 basis points. Brokers who now earn 5 basis points on cash deposits will see that dwindle to zero if cash-management products are not used, the people familiar with the plan said.
On the flip side, Morgan Stanley will offer a $100 award to client support associates who enroll customers in direct-deposit programs. The firm tried a similar program tied to American Express cards several years ago, but rescinded it after finding that a higher-than-expected number of employees were gaming the program through excessive sign-ups.
While Morgan Stanley has changed the grid hurdles, it is retaining 16 payout bands, awarding from 28% at the bottom production end ($0-$256,000) to 55.5% at the highest level ($5 million and above). The $5 million production level is the only one that is not affected by a more rigorous revenue hurdle.
Brian Hamburger, a lawyer whose consulting firm MarketCounsel works with advisors leaving traditional brokerage firms to become registered investment advisers, said the grid tightening reflects a broad strategy signaled when Morgan Stanley withdrew from the Protocol for Broker Recruiting two years ago.
“Once you close the prison gates you can reduce the quality of the food for the inmates, and what are they going to do,” he said. “There’s no place for them to go.”
When told by a reporter that an unnamed wirehouse was imposing a 10% hike on grid qualification, industry recruiter Mindy Diamond said she was not surprised.
“It may seem like a small change,” said Diamond, who recruits on behalf of both large broker-dealers and smaller advisory and independent firms, “but advisors will look at it as another signal that they are valued less and are not in control.”
The 2020 comp plan preserves brokers’ ability to add as much as 3% to per-household payout levels. To qualify, a household must have a financial plan (adding 1% to the grid payout), grow net assets in an account by $500,000 or by 5% (another 1%), or add $2 million of net new assets (a third 1% bump). Morgan Stanley in 2020 is adding another 1% incentive for each account in which net new assets grow by at least $5 million.
The changes to the grid thresholds, ‘small household’ policy and growth awards become effective on April 1.
-Mason Braswell contributed to this story.