Brothers Fired for Exploiting Morgan Stanley Bonus Formula Join Small Firm
Brothers on a high-producing Morgan Stanley team have joined a small broker-dealer in Cleveland after running into trouble over an unapproved compensation arrangement to exploit their former firm’s team-based incentives.
Douglas R. Powers, 65, and David W. Powers, 56, registered with McDonald Partners on December 19, a month after Morgan Stanley terminated them, according to Thomas M. McDonald, the founder and chief executive of their new firm. The brothers, who will set up shop later this month, generated around $2 million in combined production, he said.
David Powers and a third junior team member who remains at Morgan Stanley consolidated their individual production credits with that of Douglas, elevating his grid payout to help him meet new production hurdles and allowing them to benefit from its policy of paying team members at the highest producer’s level.
To compensate his younger brother for his lower individual gross production, Douglas wrote him personal checks, according to Powers and another source familiar with the events.
The brothers were discharged for “a compensation arrangement with other registered representatives of the firm that was not approved by the firm,” according to their otherwise unmarred BrokerCheck records. The arrangement did not affect customers, Morgan Stanley wrote on their U-5 termination forms that are summarized on BrokerCheck.
McDonald said he felt comfortable hiring the brothers because his 12-year-old firm pays brokers on its 21 teams on an across-the-board team production level—rather than on an individual basis—and because no customers were hurt by their scheme.
But in a sign of a generally heightened industry sensitivity to compliance issues, several larger firms that the Powerses hoped to join were reluctant to hire them, said the second source, who spoke on condition of anonymity.
Douglas Powers, who spent his entire 34-year brokerage career at Morgan Stanley and predecessor firms Smith Barney and Lehman Brothers, did not respond to a request for comment. His brother, a registered representative for seven years who joined Morgan Stanley in Pepper Pike, Ohio, in July 2013, was not available to comment, McDonald said.
Philip Blickensderfer, the youngest member of their former team who has been a registered rep for 12 years, did not return a call for comment to his Morgan Stanley office in Pepper Pike.
A spokeswoman at Morgan Stanley declined to comment.
McDonald, whose firm employs around 35 brokers managing around $2.5 billion of customer assets, was the former head of the private client group at former Cleveland-based regional broker-dealer McDonald & Co.,whose founders were unrelated to his family. After KeyCorp bought the firm in 1998, he ran the combined firms’ private bank before leaving to start his own brokerage in 2006. KeyCorp sold McDonald to UBS AG in 2007.