Morgan Stanley Delays Tougher Pay Hurdles, Wells Stays Higher Customer Fees
(Updated in last two paragraphs with details of broker incentive plans that Morgan Stanley has delayed by one month.)
In deference to challenges posed by the coronavirus crisis, two large brokerage firms are delaying changes that would have hit the wallets of some brokers and customers.
The change that was set to become effective next week, on April 1, will be delayed until October 1, according to an email from field management head Vincent Lumia.
Wells Fargo Advisors on Thursday told its more than 14,000 employee and independent brokers that it will continue to waive annual account fees for customers who keep more than $250,000 in their commission brokerage accounts. It had planned to raise the fee-waiver level to $500,000 as of June 30. The maximum per-household fee is $300 annually, with discounts for accounts that receive statements and other documents electronically.
The changes aim to ameliorate steep declines that have hit investment accounts in the wake of fears of a long-term economic recession due to Covid-19. On March 9, the 11-year bull market officially fell into correction territory as the Dow Jones Industrial Average lost 2,014 points, or 7.8%, while the S&P 500 and Nasdaq Composite fell 7.3% and 7.6%, respectively.
“We know that you are facing enormous challenges personally and professionally while at the same time taking great care of your clients in a very difficult environment,” Lumia told brokers Friday, almost of all of whom have been working outside their branches for the past two weeks.
Since firms generally charge advisory fees equal to a percentage of assets in customer accounts as of the end of the previous quarter, and since retail investors have not been trading heavily to generate commissions, brokers are expecting payout pain. Fees billed as of April 1 will reflect the almost 18% decline in major market indices over the past month.
Morgan Stanley’s grid change will raise the minimum level of fees and commissions brokers must produce across 15 of its 16 revenue bands. The new thresholds, which determine payouts ranging from 28% to 55.5% of what customers pay, will rise by about 10% under the postponed plan. The minimum will not change for brokers producing at least $5 million, the 55.5% payout pinnacle.
Morgan Stanley had positioned the formula change as a way to rein skyrocketing compensation costs fueled by an 11-year bull market. Compensation should not be indexed solely to broad market gains that do not reflect a broker’s sales or investment skills, a person familiar with the strategy said when the new plan was announced last November.
Wells Fargo Advisors’ decision to delay the customer fee hike similarly acknowledges the virus economy.
“This is the result of the current environment, and to ensure we are best serving our clients,” a company spokeswoman said.
Merrill Lynch last week delayed its plan to make mid-year assessments of “team payout” incentives in recognition of the “unprecedented” pandemic. The plan would have excluded advisors from enjoying a payout at the level of a team’s highest producer if members failed to enroll a predetermined minimum number of clients in banking, trust and advisory programs favored by the firm and parent Bank of America.
Wells Fargo Advisors does not appear to have made any additional changes in its household-wealth penalty––20% to employee-channel brokers with household accounts under $250,000. The deterrent to working with “small” accounts was increased this year from a household asset level of $100,000. Wells brokers normally retain 50% of the revenue clients pay, once a monthly threshold is achieved.
Morgan Stanley reinforced its aversion to small-household accounts earlier this year with a penalty payout of 10% on households with less than $250,000 that do not have a financial plan. But as of May 1, Lumia’s memo reminded them, they can receive standard grid payouts on the small accounts if loans, deposits and other “liabilities,” together with investment assets, reach $250,000. The calculation to qualify liabilities had initially been scheduled to go into effect on April 1.
Morgan Stanley also has postponed by a month until May 1 an incentive that adds 100 basis points to payouts for households that increase their accounts over 12 consecutive months by $5 million. The start of the Net Acquired Asset bonus calculation also will be delayed by a month until May 1, Lumia wrote.