Morgan Stanley Lowers Broker Payout on International Accounts
Morgan Stanley has narrowed job-hopping flexibility with its decision to leave the Protocol for Broker Recruiting on Friday morning, but the vast majority of its almost 16,000 brokers with no plans to move are digesting other changes that could affect their 2018 payout.
As forecast, Morgan Stanley this week told brokers it is initiating a unique monthly payout calculation, or “rolling grid” for 2018.
The formula puts pressure on brokers to keep sales revenue steadily flowing—and growing—because it eliminates a fixed payout percentage retroactive to the previous six months of the earning year.
Morgan Stanley also is reducing by 3 percentage points the amount of fees and commissions that brokers pocket from accounts of clients residing outside the U.S. The cut runs across all16 breakpoints in the firm’s payout grid, underscoring big firms’ reluctance to absorb the regulatory and legal risks of working with wealthy foreigners subject to anti-money laundering laws and other rules and regulations.
In presenting its 2018 compensation plan to managers and brokers this week, wealth management executives emphasized that there will be no grid or breakpoint changes for money produced in domestic accounts. The biggest broker-dealer by number of brokers raised breakpoint targets by 10% last year, though payout remained at 28% to 55.5% of the fees and commission brokers generate. The same payout levels and breakpoints will apply in 2018.
In another 2018 change, Morgan Stanley confirmed that it will no longer pay brokers for opening or adding assets to retirement accounts for themselves and their relatives. The decision affects millions of dollars that some brokers have accumulated in individual retirement accounts, particularly those who received continuing payouts from IRAs that are fee-based.
Morgan Stanley will continue to credit new money added to personal and family retirement accounts to total production for purposes of calculating grid breakpoints. (Wells Fargo Advisors, which stopped paying on personal retirement accounts at the beginning of this year, does not give grid credit.)
Several brokers contacted by AdvisorHub said they remain confused by how the rolling-grid calculation may affect their 2018 earnings, although one said that managers can calculate how their pay would have changed if the policy were currently in effect.
Compensation plan changes are designed to be behavioral, and Morgan Stanley’s 2018 program appears to further its goal of discouraging commission-generating transactional accounts. Commission accounts generate more volatile revenue flows than fee-based advisory accounts because they depend on trading. They also expose firms and brokers to potential churning accusations.
The monthly calculation could deter brokers from becoming overzealous about selling toward the end of a look-back period in order to notch a higher payout, said Andy Tasnady, a compensation consultant based in Long Island who has not been briefed on the new Morgan Stanley calculation.
A monthly jump in transactional revenue often results from one-time events such as estate liquidations or a jumbo mortgage, brokers say, meaning it is unlikely to be reproducible. And the temporary bump in payout will likely apply to lower total revenue in the coming month, one skeptical veteran broker said.
Morgan Stanley’s new calculation formula eliminates payout retroactivity. The firm currently calculates its fixed payout number twice a year.
“Even for brokers on the way up, the new monthly calculation sounds like it could have a slowing effect” on payout raises, Tasnady said.
Morgan Stanley designed its monthly trailing-12 calculation ”to better align compensation with the new regulatory environment,” a spokeswoman said, alluding in part to the Department of Labor’s guidance that compensation on retirement accounts should be reasonable.
A firm spokeswoman had earlier said that the new system’s perpetual capture of a trailing 12-month period is smoother than the twice-a-year calculation.
“One month’s change has less impact,” she said.