EXCLUSIVE: Morgan Stanley to Change Payout Calculation
(Recasts last paragraph to indicate firm will fine brokers for failing to report arrest and bankruptcy/lien histories.)
In a compensation twist that could prompt its brokers to rely even more heavily on fee-based advisory accounts that smooth revenue production, Morgan Stanley will recalculate payout levels in 2018 on a monthly basis rather than using its twice-a-year current model.
The unusual ‘rolling grid’ plan that is expected to be announced to the firm’s 15,700 brokers next week will tie the monthly percentage of fees and commissions that they keep to their total production over the previous 12 months. Most brokerage firms calculate payout percentages for an entire year based on the previous year’s revenue that a broker produces, although Morgan Stanley this year introduced a six-month lookback.
“It’s smoother than the old system,” a Morgan Stanley spokesperson said. “It’s always capturing a 12-month period, so one month’s change has less impact.”
The firm, which is more reliant on its wealth management business than its major banking competitors, also believes that the monthly calculation will curb broker temptations to engage in high-pressure or high-commission practices toward yearend to reach a higher payout rate for the coming year. The Department of Labor’s fiduciary rule that became partially effective in June aims to curtail such behavior.
“This is addressing changes in the regulatory environment, the DOL among other things,” the spokesperson said.
Though the change risks riling brokers with a fundamental change that other firms have not introduced, Morgan Stanley assured managers who got a preview of the 2018 compensation plan earlier this week that it will not fiddle with the fundamental grid threshold levels that determine payouts.
The firm’s 16 grid hurdles that determine payouts of 28% to 55.5% of the money generated from customers will not change next year, they were told. The hurdles are tied to revenue and length of service, and brokers also will continue to receive bonuses for selling loans, deposits and hitting growth goals.
How brokers react to the calculation change depends on whether they are on the rise or on the wane in their career production tracks, said Andy Tasnady, a brokerage industry compensation consultant. The monthly calculation also creates an incentive for brokers to use more fee-based advisory accounts that generate revenue regardless of client activity rather than commission-based transaction accounts, he and some managers said.
“If you just look at flat revenue produced, the monthly calculation shouldn’t make a difference,” Tasnady said. “A 12-month (annual) calculation is easier to model, but a rolling 12-month one should keep production and payout rates very stable.”
Some brokers and managers said brokers will think twice about taking long vacations since an absence from the firm can affect their monthly cash flow under the new system.
“Advisors always want to start at a high grid and not have pressure each month,” said a branch management source who was briefed on the changes earlier this week. “This will make them feel more pressure to perform.”
The new calculation calendar also could further Morgan Stanley’s goal of getting brokers to work on teams, since they will have more cover from colleagues if they take time off, Tasnady said.
In other changes, the 2018 Morgan Stanley plan makes behavioral tweaks aimed at reinforcing disclosure rules and curbing what may be viewed as self-dealing.
Starting in January, the firm will no longer pay brokers for opening retirement accounts for themselves or their families, a policy that Wells Fargo Advisors included in its 2017 compensation plan and that UBS is adopting in 2018, a spokesperson confirmed. Unlike Wells, Morgan Stanley will continue to give brokers production credit for assets added to such personal plans.
Morgan Stanley also is cracking down on brokers who expose it to regulatory sanctions by failing to report arrest records and financial judgments such as bankruptcies and liens.
Starting in 2018, brokers will be penalized up to $1,000 for failing to report violations, the spokesperson said.
I wasn’t aware of the brokers could take vacations.
So glad to be out of that cesspool.
Oh yeah, forgot to mention if you make less than 300+k, MS has a special 20% payout to chase away those advisers and the clients. Great business model. j/k
Stand in line. Merrill has a new plan coming and it won’t be pretty, I’ve seen it. Question. When was the last time a wirehouse comp plan moved in a favorable direction?
How have you seen it ??
I used to hate it when “We will treat you like cargo” management would come out with a new plan, and tell you how great it was. Of course it paid me less, and most brokers can do the math to know it too. Smiling and lying, is how I perceived it. All the firms look at broker comp as an “expense.” I am sure the new plan will be “great” for MS guys.
Comp plans are more than an expense control. They are also a retention tool as well as a behavior tool. As always grids are designed to anchor top producers and encourage the mediocre “up or out”. There is nothing wrong with that. No different than the advisors themselves codling best clients and weeding the garden of not profitable clients…
As to Advisors taking time off it is a non-event for those who run their business consistent with MS best practices. If you derive the bulk of your revenue from fees their is zero impact. Transactional advisors have blocked themselves out of extended holidays under all scenarios!
The new MS comp model is quite similar to the much loved Wells Advisors model and models of several large regional firms. Loved because they favor the high production advisor and reward the best of the best…
MS plan is not at ALL similar to Wellls Fargo Advisors plan or regionals. WFA pays the broker monthly on exactly what they earn that month- same payout every month- 22% up to 10500-13250 and 50% of everything over. Every month you start fresh. It’s too bad other firms do not adopt it. MS deceives brokers by stealing actual pay, deferring it, and dreams up ways to keep chipping away at broker comp. What they have done will garner lawsuits at some point. They pay their brokers as little as possible, steal some of it thru deferral and earn money on it for themselves when it belongs to the broker who earned it. Disgusting -and illegal. Their eps growth is a sham and made on the backs of comp theft. Are you listening industry regulators and state employee rights regulators?
I felt like the section describing the new familial pay restrictions were confusing. So you will get production credits but not bonuses for new assets in family accounts? Could someone familiar with the comp plan explain? I left another Wirehouse over this policy-what advisor doesn’t manage some family money? It’s how many of us got our start. It feels like a confiscation of assets and a blatant money grab.
Everything they come up with is a blatant money grab. Folks, Management hates you.
You have missed the biggest news coming out of Morgan Stanley. They are exiting broker protocol! First the initiate a handcuff by deferring compensation. Then they continue to nip at compensation by stretching the grid. Now that FA’s have shifted toward fee-based compensation, they move to compensation based upon monthly revenue. Just wait for the next bear market to hammer your fee-based assets and torpedo your compensation more quickly. Finally, they’ve put up a gate. Without broker protocol, how can anyone leave. The other majors will follow. Collusion?
It doesn’t make sense to create a grid that punishes people for taking an occasional vacation. This is exactly why teams end up going independent. They can control their own destiny instead of firms trying to control them.
To add to this, MS just announced that they are backing out of Advisor Protocol, which appears to be another way to keep their employees captive. The good news is there are many other solutions and we can help them find them.
So MS is “curbing what may be viewed as self-dealing” by no longer compensating Advisors on their own retirements and those of their families? Perhaps they should instead “curb what may be viewed as a money grab” by not charging those accounts any fees or commissions in the first place?… (At least they didn’t try and cite DOL rules).
…And how many times in the past have we seen these firms in the past force Advisors to heavy fee based businesses when the market is soaring sky high, only to reverse course when the market has a prolonged down turn and their profits suffer? They have such a knack for timing it perfectly!!